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As filed with the Securities and Exchange Commission on February __, 1995
REGISTRATION NO. 33-XXXXX
============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE SCOTTS COMPANY
(Exact name of Registrant as specified in its charter)
OHIO 2875 31-1199481
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041, (513) 644-0011
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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CRAIG D. WALLEY
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
(513) 644-0011
(Name, address, including zip code, and telephone
number, including area code of agent for service)
COPIES TO:
G. ROBERT LUCAS, II J.MICHAEL SCHELL
VORYS, SATER, SEYMOUR AND PEASE SKADDEN,ARPS, SLATE, MEAGHER & FLOM
52 EAST GAY STREET, P.O. BOX 1008 919 THIRD AVENUE
COLUMBUS, OHIO 43216-1008 NEW YORK, NEW YORK 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement as the Registrant shall determine.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
| | | |
| | | PROPOSED | PROPOSED
TITLE OF EACH CLASS OF | AMOUNT | MAXIMUM | MAXIMUM | AMOUNT OF
SECURITIES TO | TO BE | OFFERING | AGGREGATE | REGISTRATION
BE REGISTERED | REGISTERED | PRICE | OFFERING PRICE | FEE
| | PER UNIT | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | | |
Class A Convertible Preferred Stock | 195,000 shares (and | $88.03(1) | $17,166,218(1) | $5,920.00
without par value (and Warrants | warrants to purchase | | |
to purchase Common Shares) . . | Common Shares) | | |
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares, without par | | | |
value(2) . . . . . . . . . . . . | 3,000,000 shares | (3) | $75,000,000(1)(3) | $26,100.00
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares, without par | | | |
value . . . . . . . . . . . . . . | (4) | (4) | (4) | (4)
====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) and Rule 457(i).
(2) Reserved for issuance on exercise of the Warrants. An additional
indeterminable number of shares is being registered to cover any
adjustments in the number of shares issuable upon exercise of the Warrants.
(3) Reflects Warrant offering prices of $21, $25 and $29, respectively, for
1,000,000 Common Shares each.
(4) Such indeterminate number of shares as may be required for issuance upon
conversion of the Class A Convertible Preferred Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
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Cross Reference Sheet pursuant to Rule 404(a)
of the Securities Act of 1933, as amended, and Item 501(b)
of Regulation S-K, showing the location in
the Proxy Statement/Prospectus
of the Information required by Part I of Form S-4.
S-4 Item Number and Caption Location in Proxy Statement/Prospectus
--------------------------- --------------------------------------
A. Information about the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . Facing Page of Registration Statement; Cross Reference Sheet;
Outside Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . Available Information; Incorporation of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information . . . . . Summary
4. Terms of the Transaction . . . . . . . . Summary; The Merger Transactions ; The Agreement; Proposed Amendment
to Article FOURTH of the Amended Articles of Incorporation; Proposed
Amendments to Section 2.02 of the Code of Regulations; Proposed
Amendment to Section 6.01 of the Code of Regulations; Protection
Against Non-Negotiated Takeovers; Description of the Capital Stock of the
Company; The Warrants; Description of the Capital Stock of
Miracle-Gro; Comparison of Shareholder Rights
5. Pro Forma Financial Information . . . . Index to Financial Statements
6. Material Contacts with the Company Being
Acquired . . . . . . . . . . . . . . . . The Merger Transactions; The Agreement; Election of Directors
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters . . . . . . . . . . . *
8. Interests of Named Experts and Counsel . Experts
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9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . *
B. Information About the Registrant
10. Information With Respect to S-3
Registrants . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference
12. Information With Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . *
13. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . *
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants . . . *
C. Information About the Company Being Acquired
15. Information With Respect to S-3
Companies . . . . . . . . . . . . . . . *
16. Information With Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . *
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies . . . . Summary; Information about the Miracle-Gro Companies; Miracle-Gro
Shareholder Limited Partnership; Index to Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorization Are to be Solicited . . . Cover Page of Proxy Statement/Prospectus; Summary; The Annual Meeting;
The Merger Transactions; The Agreement; Proposal to Approve Acquisition of
One-Third or More but Less Than a Majority of the Voting Power of the
Company; Proposed Amendment to Article Fourth of the Amended Articles of
Incorporation; Proposed Amendment to Adopt New Article Ninth of the Amended
Articles of Incorporation; Proposed Amendments to Section 2.02 of the Code
of Regulations; Proposed Amendment to Section 6.01 of the Code
of Regulations; Election of Directors; Dissenters' Rights
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19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in Exchange Offer . . . . . . . . . . *__
- ----------
*Omitted because not required, inapplicable or answer is negative.
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THE SCOTTS COMPANY
14111 Scottslawn Road
Marysville, Ohio 43041
March [8], 1995
Dear Fellow Shareholders:
The Annual Meeting of the Shareholders (the "Annual Meeting")
of The Scotts Company, an Ohio corporation (the "Company"), will be held at
10:00 a.m., local time, on Thursday, April 6, 1995, at the Stouffer Dublin
Hotel, 600 Metro Place North, Dublin, Ohio 43017. In light of the proposed
transactions described below, this is a momentous Annual Meeting for the
Company, and we therefore strongly encourage you to exercise your right to
vote.
As you may have read in the newspaper recently, the Company
has entered into an Agreement and Plan of Merger (the "Agreement") with Stern's
Miracle-Gro Products, Inc., Stern's Nurseries, Inc., Miracle-Gro Lawn Products
Inc. and Miracle-Gro Products Limited, related corporations which market and
distribute the country's leading brand of water-soluble plant food for the
consumer market (the "Miracle-Gro Companies"), and with the shareholders of the
Miracle-Gro Companies (the "Miracle-Gro Shareholders"). Under the Agreement,
the Miracle-Gro Companies will become wholly-owned by the Company (the "Merger
Transactions"), and the Miracle-Gro Shareholders will receive 195,000 shares of
newly created Class A Convertible Preferred Stock of the Company, which will
enable them to exercise, as a group, approximately 35% of the voting power of
the Company, and warrants to purchase an additional 3,000,000 Common Shares of
the Company, which, if exercised, would enable them to exercise, together with
the Class A Convertible Preferred Stock, approximately 42% of the total voting
power of the Company.
The Company's management and its Board of Directors believe
that the Merger Transactions will benefit our shareholders and strengthen the
Company. There are five principal benefits that the Company's management and
the Board believe the Company will derive from the Merger Transactions. These
are described in the Proxy Statement/Prospectus (see "THE MERGER TRANSACTIONS -
Reasons for the Merger Transactions"). Briefly, we believe the Merger
Transactions should:
- - BRING TOGETHER TWO OF THE STRONGEST BRANDS -- SCOTTS(R) AND
MIRACLE-GRO(R) -- IN THE LAWN AND GARDEN INDUSTRY.
- - CREATE A MORE PROFITABLE, FASTER GROWING COMPANY.
- - OPEN NEW INTERNATIONAL MARKET OPPORTUNITIES.
- - SUBSTANTIALLY INCREASE FREE CASH FLOW.
- - ENHANCE THE COMPANY'S BALANCE SHEET AND ITS CREDIT-WORTHINESS.
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Of course, as in any business transaction, there can be no
assurance that these expectations will be fulfilled.
Smith Barney Inc., the Company's financial advisor, has
rendered an opinion to the Board of Directors to the effect that, as of the
date of its opinion, the consideration to be paid by the Company with respect
to the Merger Transactions is fair, from a financial point of view, to the
Company.
The consummation of the Merger Transactions is conditioned on,
among other things, the approval of certain matters to be considered at the
Annual Meeting. First, the acquisition by the Miracle-Gro Shareholders, as a
group, of one-third or more but less than a majority of the voting power of the
Company (Proposal No. 1) must be approved in accordance with the provisions of
Section 1701.831 of the Ohio General Corporation Law. Second, the proposal to
amend Article FOURTH of the Amended Articles of Incorporation to, among other
things, authorize the Class A Convertible Preferred Stock (Proposal No. 2) must
be approved by the holders of two-thirds of the outstanding Common Shares.
Finally, the proposals to amend Section 2.02 of the Code of Regulations to
create a classified Board (Proposal No. 4) and to limit the authority of the
directors to increase the number of directors (Proposal No. 5) must be approved
by the holders of a majority of the outstanding Common Shares.
Your Board of Directors believes that the Merger Transactions
are in the best interests of the Company and its shareholders and that it will
further the Company's long-term objective of maximizing shareholder value. The
Board has unanimously approved the Merger Transactions and recommends that you
vote FOR Proposal Nos. 1, 2, 4 and 5 in order that the Merger Transactions may
be consummated.
In addition to approving Proposal Nos. 1, 2, 4 and 5, which
are conditions precedent to the Merger Transactions, you will be asked to
consider and vote upon an amendment to the Company's Amended Articles of
Incorporation which would modify the procedure for adopting future amendments
to the Amended Articles of Incorporation (Proposal No. 3); an amendment to
Section 6.01 of the Code of Regulations to increase to two-thirds the vote
required to amend Sections 1.02, 2.02 and 6.01 of the Code of Regulations
(Proposal No. 6); and the election of nine (9) directors (Proposal No.7). Your
Board of Directors recommends that you vote FOR each of these proposals.
The enclosed Notice of Annual Meeting and Proxy
Statement/Prospectus contains detailed information about the Merger
Transactions and the matters to be voted upon at the Annual Meeting. Please
give this material your careful attention.
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On behalf of the Board of Directors and management, we
cordially invite you to attend the Annual Meeting. Whether or not you plan to
attend the Annual Meeting, the prompt return of your proxy in the enclosed
return envelope will save the Company additional expenses of solicitation and
will help ensure that as many shares as possible are represented.
Sincerely,
Tadd C. Seitz Theodore J. Host
Chairman and Chief Executive Officer President and Chief Operating
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[SCOTTS LOGO]
THE SCOTTS COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, April 6, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
(the "Annual Meeting") of The Scotts Company, an Ohio corporation (the
"Company"), will be held at the Stouffer Dublin Hotel, 600 Metro Place North,
Dublin, Ohio 43017, on Thursday, April 6, 1995 at 10:00 a.m., local time, for
the following purposes:
1. To consider and vote upon the acquisition of one-third or more
but less than a majority of the voting power of the Company by the shareholders
of Miracle-Gro Products, Inc., a New Jersey corporation ("Miracle-Gro"),
Stern's Nurseries, Inc., a New York corporation ("Nurseries"), Miracle-Gro Lawn
Products, Inc., a Delaware corporation ("Miracle-Gro Delaware"), and
Miracle-Gro Products Limited, a New York corporation ("Miracle-Gro UK"),
(Miracle-Gro, Nurseries, Miracle-Gro Delaware and Miracle-Gro UK are referred
to collectively as the "Miracle- Gro Companies" and the shareholders of the
Miracle-Gro Companies are referred to as the "Miracle-Gro Shareholders") in
connection with the merger transactions involving the Miracle-Gro Companies and
the Company.
2. To consider and act upon a proposal to amend Article FOURTH of
the Amended Articles of Incorporation of the Company to increase the authorized
number of Common Shares from 35,000,000 shares to 50,000,000 shares and to
authorize a class of 195,000 voting preferred shares designated Class A
Convertible Preferred Stock.
3. To consider and act upon a proposal to amend the Amended
Articles of Incorporation of the Company to add a new Article NINTH - a
procedure for further amending the Amended Articles of Incorporation.
4. To consider and act upon a proposal to amend Subparagraphs (A)
and (B) of Section 2.02 of the Code of Regulations of the Company in order,
among other things, to fix the number of directors at nine persons, divided
into three classes consisting of three directors each, with one class to serve
initially for a term of one year and thereafter for terms of three years, one
class to serve initially for a term of two years and thereafter for terms of
three years and one class to serve for a term of three years and thereafter for
terms of three years.
5. To consider and act upon a proposal to amend Subparagraph (C)
of Section 2.02 of the Code of Regulations of the Company in order to eliminate
the authority of the directors to increase the number of directors beyond
twelve directors.
6. To consider and act upon a proposal to amend Section 6.01 of
the Code of Regulations of the Company to increase to two-thirds (2/3) the vote
to amend Sections 1.02, 2.02 (if Proposal No. 4 is adopted) and 6.01 of the
Code of Regulations.
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7. To elect three directors for terms of one year, to elect three
directors for terms of two years and to elect three directors for terms of
three years (or, if Proposal No. 4 is not adopted, to elect nine directors to
serve until the next Annual Meeting of Shareholders).
8. To transact such other business as may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
The close of business on February 17, 1995, has been fixed by
the Board of Directors of the Company as the record date for determining the
shareholders entitled to notice of, and to vote at, the Annual Meeting. A list
of shareholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and during business hours from March [8], 1995
to the date of the Annual Meeting at the Company's headquarters at the address
set forth below and at the law offices of Vorys, Sater, Seymour and Pease, 52
East Gay Street, Columbus, Ohio 43215.
You are cordially invited to attend the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you may insure your
representation by completing, signing, dating and promptly returning the
enclosed proxy card. A return envelope, which requires no postage if mailed in
the United States, has been provided for your use. If you attend the Annual
Meeting and inform the Secretary of the Company in writing that you wish to
vote your shares in person, your proxy will not be used.
By Order of the Board of Directors
Craig D. Walley,
Vice President and Secretary
The Scotts Company
14111 Scottslawn Road
Marysville, Ohio 43041
March [8], 1995
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[SCOTTS LOGO]
THE SCOTTS COMPANY
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
PROXY STATEMENT PROSPECTUS
FOR FOR 195,000 SHARES OF CLASS A CONVERTIBLE
ANNUAL MEETING OF SHAREHOLDERS PREFERRED STOCK AND WARRANTS TO PURCHASE
THURSDAY, APRIL 6, 1995 3,000,000 COMMON SHARES, AND THE COMMON SHARES
ISSUABLE IN RESPECT THEREOF
This Proxy Statement/Prospectus is furnished in connection with the
solicitation on behalf of the Board of Directors of The Scotts Company, an Ohio
corporation (the "Company"), of proxies for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at the Stouffer Dublin Hotel,
600 Metro Place North, Dublin, Ohio 43017, on Thursday, April 6, 1995, at
10:00 a.m., local time, and at any adjournment or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders.
This Proxy Statement/Prospectus also constitutes the prospectus of the
Company relating to 195,000 shares of Class A Convertible Preferred Stock and
Warrants to purchase 3,000,000 Common Shares, without par value (and the Common
Shares issuable on the conversion or exercise thereof), to be issued by the
Company in accordance with the terms of the Agreement and Plan of Merger, dated
as of January 26, 1995 (the "Agreement"), described in this Proxy
Statement/Prospectus and attached hereto as Appendix I, by and among the
Company, ZYX Corporation, a wholly-owned subsidiary of the Company ("Merger
Subsidiary"), Miracle-Gro Products, Inc., a New Jersey corporation
("Miracle-Gro"), Stern's Nurseries, Inc., a New York corporation ("Nurseries"),
Miracle-Gro Lawn Products, Inc., a Delaware corporation ("Miracle-Gro
Delaware"), Miracle-Gro Products Limited, a New York corporation registered in
the United Kingdom ("Miracle-Gro UK," and collectively with Miracle-Gro,
Nurseries and Miracle-Gro Delaware, the "Miracle-Gro Companies"), and the
shareholders of the Miracle-Gro Companies (the "Miracle-Gro Shareholders").
Each share of Class A Convertible Preferred Stock will be convertible
at any time into approximately 52.6 Common Shares of the Company, subject to
adjustment upon the occurrence of certain events, and will be entitled to a
number of votes equal to the number of Common Shares into which it is
convertible. Each such share will earn dividends at the rate of $50 per year
and will be entitled to a liquidation preference of $1,000 plus accumulated
unpaid dividends. The Class A Convertible Preferred Stock will be subject to
redemption at any time after five years from the date of issuance, for $1,000
per share plus accumulated unpaid dividends. See "DESCRIPTION OF THE CAPITAL
STOCK OF THE COMPANY - Class A Convertible Preferred Stock."
The Warrants will be exercisable for eight and one-half years for the
purchase of 1,000,000 Common Shares at $21 per share, 1,000,000 Common Shares
at $25 per share and 1,000,000 Common Shares at $29 per share, in each case
subject to adjustment upon the occurrence of certain events. See "THE
WARRANTS."
This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed on or about March [8], 1995, to all shareholders of the
Company. Only holders of record of the Company's Common Shares at the close of
business on February 17, 1995 (the "Record Date"), will be entitled to vote at
the Annual Meeting.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS _________, 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison, 14th Floor, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, material filed by the Company can be inspected
at the offices of The NASDAQ Stock Market and the New York Stock Exchange.
The Company has filed with the Commission a registration statement on
Form S-4 (herein, together with any amendments, supplements and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the securities to be issued
pursuant to the Agreement. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Proxy Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
The Miracle-Gro Companies are not subject to the informational
requirements of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Current Report on Form 8-K/A dated February 23, 1994,
Annual Report on Form 10-K for the fiscal year ended September 30, 1994, and
all other documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the Annual Meeting, which documents are filed
with the Commission (File No. 0-19768) pursuant to the Exchange Act, are
incorporated herein by reference. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request. Requests should be directed to The Scotts Company,
14111 Scottslawn Road, Marysville, Ohio 43041, Attention: Vice President,
Corporate Communications, telephone (513) 644-0011. In order to ensure timely
delivery of the documents, any request should be made by March [30], 1995.
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TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Date, Time and Place of Annual Meeting of Shareholders of the Company . . . . . . . . . . . . 2
Record Date; Shareholders Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Purpose of Annual Meeting of Shareholders of the Company . . . . . . . . . . . . . . . . . . . 2
Parties to the Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Terms of the Proposed Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Reasons for the Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Matters to be Considered at the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . 8
Voting at the Meeting; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE MERGER TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Background of the Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reasons for the Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Terms of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Standstill Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MIRACLE-GRO SHAREHOLDER LIMITED PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(i)
13
PROPOSAL TO APPROVE ACQUISITION OF ONE-THIRD OR MORE BUT LESS THAN A MAJORITY OF THE
VOTING POWER OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effect of Approval of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . 21
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE AMENDED ARTICLES OF INCORPORATION . . . . . . . 22
Proposed Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Effect of Adoption of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 22
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PROPOSED AMENDMENT TO ADOPT NEW ARTICLE NINTH OF THE AMENDED ARTICLES OF INCORPORATION . . 23
Proposed Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Effect of Adoption of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 23
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PROPOSED AMENDMENTS TO SECTION 2.02 OF THE CODE OF REGULATIONS . . . . . . . . . . . . . . 24
Proposed Amendments to Subparagraphs (A) and (B) (Proposal No. 4) . . . . . . . . 24
Proposed Amendment to Subparagraph (C) (Proposal No. 5) . . . . . . . . . . . . . 24
Effect of Adoption of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 24
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PROPOSED AMENDMENT TO SECTION 6.01 OF THE CODE OF REGULATIONS . . . . . . . . . . . . . . 25
Proposed Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effect of Adoption of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 25
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS . . . . . . . . . . . . . . . . . . . . . . . . 25
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Nominees for Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Recommendation and Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Miracle-Gro Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Beneficial Ownership of Common Shares . . . . . . . . . . . . . . . . . . . . . . 31
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Report of the Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . 38
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Certain Matters Pertaining to the Board of Directors . . . . . . . . . . . . . . . 45
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 46
Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Class A Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 47
THE WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
DESCRIPTION OF CAPITAL STOCK OF THE MIRACLE-GRO COMPANIES . . . . . . . . . . . . . . . . . 48
(ii)
14
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Mergers and Consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Other Corporate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Protection against Non-Negotiated Takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Class Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Removal of Directors and Filling of Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Amendment to the Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Director and Officer Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 52
INFORMATION ABOUT THE MIRACLE-GRO COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Business of The Miracle-Gro Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Market Price of and Dividends on Common Stock of the Miracle-Gro Companies . . . . . . . . . . . . 55
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Management's Discussion and Analysis of Financial Condition and Results of Operation . . . . . . 55
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
VALIDITY OF SHARES OF CLASS A CONVERTIBLE PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . 58
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Appendix I Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . I-1
Appendix II Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Appendix III Acquiring Person Statement . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Appendix IV Proposed Amended Article FOURTH of the Amended Articles of Incorporation . . . IV-1
Appendix V Proposed Article NINTH of the Amended Articles of Incorporation . . . . . . . V-1
Appendix VI Proposed Amended Subparagraphs (A), (B) and (C) of
Section 2.02 of the Code of Regulations . . . . . . . . . . . . . . VI-1
Appendix VII Proposed Amended Section 6.01 of the Code of Regulations . . . . . . . . . . . VII-1
(iii)
15
SUMMARY
The following summary is not intended to be complete and is qualified
in its entirety by reference to more detailed information contained elsewhere
in this Proxy Statement/Prospectus, the Appendices and the documents
incorporated herein by reference. Shareholders are urged to read this Proxy
Statement/Prospectus and the Appendices hereto in their entirety.
DATE, TIME AND PLACE OF ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY
The Annual Meeting of Shareholders of the Company will be held on
Thursday, April 6, 1995, at 10:00 a.m., local time, at the Stouffer Dublin
Hotel, 600 Metro Place North, Dublin, Ohio 43017.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of Common Shares of the Company at the close of
business on the Record Date, February 17, 1995, will be entitled to notice of
and to vote at the Annual Meeting. On the Record Date, there were [18,677,064]
Common Shares outstanding, each of which will be entitled to one vote on each
matter properly submitted for vote to the Company's shareholders at the Annual
Meeting. See "THE ANNUAL MEETING - Voting at the Meeting; Record Date."
PURPOSE OF ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY
The purpose of the Annual Meeting will be to consider and vote on
proposals to: (1) approve the acquisition of one-third or more but less than a
majority of the voting power of the Company by the Miracle-Gro Shareholders, as
a group, (2) amend Article FOURTH of the Amended Articles of Incorporation, (3)
adopt Article NINTH of the Amended Articles of Incorporation, (4) amend
Sections 2.02 and 6.01 of the Code of Regulations, (5) elect directors and (6)
transact such other business as may properly come before the Annual Meeting.
PARTIES TO THE MERGER TRANSACTIONS
The Company is the country's leading producer and marketer of consumer
do-it-yourself lawn care and professional golf course turf care products. The
principal executive offices of the Company are located at 14111 Scottslawn
Road, Marysville, Ohio 43041, telephone (513) 644-0011.
Miracle-Gro markets and distributes the country's leading brand of
water-soluble plant food for the consumer market. The principal executive
offices of Miracle-Gro are located at 800 Port Washington Boulevard, Port
Washington, New York 11050, telephone (516) 883-6550.
TERMS OF THE PROPOSED MERGER TRANSACTIONS
Pursuant to the terms of the Agreement, (1) Merger Subsidiary will be
merged with and into Miracle-Gro, whereupon Miracle-Gro will be the surviving
corporation and a wholly-owned subsidiary of the Company (the "Merger"); (2)
immediately thereafter, (x) Nurseries will transfer all of its assets,
including but not limited to all of its intellectual property rights, but none
of its liabilities, to Miracle-Gro (the "Asset Transfer") and (y) Miracle-Gro
Delaware and Miracle-Gro UK will each merge with and into Miracle-Gro (the
"Subsequent Mergers" and, together with the Merger and the Asset Transfer, the
"Merger Transactions"); and (3) immediately thereafter, Miracle-Gro will be
merged with and into another wholly-owned Ohio subsidiary of Miracle-Gro ("New
Miracle-Gro"), which will be the ultimate surviving corporation under the name
"Scotts' Miracle-Gro Products, Inc." (the "Reincorporation"). As a result of
the Merger Transactions, the Miracle-Gro Shareholders, as a group, will receive
195,000 shares of Class A Convertible Preferred Stock of the Company, having
approximately 35% of the voting power of the Company, and Warrants to purchase
an additional 3,000,000 Common Shares of the Company, which, if exercised,
would enable them to exercise, together with the Class A Convertible Preferred
Stock, approximately 42% of the voting power of the Company. A copy of the
Agreement is attached hereto as Appendix I and is incorporated herein by
reference. See "THE AGREEMENT - Terms of the Agreement."
The consummation of the Merger Transactions is conditioned on, among
other things, the approval by the Company's shareholders at the Annual Meeting
of (i) the acquisition by the Miracle-Gro Shareholders of one-third or more but
less than a majority of the voting power of the Company (the "Acquisition") in
accordance with Section 1701.831 of the Ohio General Corporation Law (the
"GCL"); (ii) the proposal to amend Article FOURTH to create the Class A
Convertible Preferred Stock; and (iii) the amendment of Section 2.02 of the
Code of Regulations as described herein.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the
Merger Transactions, the Reincorporation and the Acquisition pursuant to the
terms of the Agreement, believes that the Merger Transactions, the
Reincorporation and the Acquisition are in the best interests of the Company
and its shareholders and recommends that the shareholders vote FOR the approval
of the Acquisition. See "THE MERGER TRANSACTIONS - Background of the Merger
Transactions" and "- Reasons for the Merger Transactions."
The Board of Directors of the Company also has unanimously approved
each of the other matters described in this Proxy Statement/Prospectus and
recommends that the shareholders vote FOR (i) the amendment to Article FOURTH
of the Amended Articles of Incorporation, (ii) the adoption of Article NINTH of
the Amended
2
16
Articles of Incorporation and (iii) the amendments to Sections 2.02 and 6.01 of
the Code of Regulations. See "PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE
AMENDED ARTICLES OF INCORPORATION," "PROPOSED AMENDMENT TO ADOPT NEW ARTICLE
NINTH OF THE AMENDED ARTICLES OF INCORPORATION," "PROPOSED AMENDMENTS TO
SECTION 2.02 OF THE CODE OF REGULATIONS" and "PROPOSED AMENDMENT TO SECTION
6.01 OF THE CODE OF REGULATIONS."
REASONS FOR THE MERGER TRANSACTIONS
The Company's management and the Board of Directors believe that the
Merger Transactions will benefit the Company's shareholders and strengthen the
Company. There are five principal benefits that the Company's management and
the Board expect the Company to derive from the Merger Transactions:
First, the Merger Transactions WILL BRING TOGETHER TWO OF THE
STRONGEST BRANDS -- SCOTTS(R) AND MIRACLE-GRO(R) -- IN THE LAWN AND GARDEN
INDUSTRY and should establish the Company as a strong branded packaged-goods
marketer.
Second, the combination SHOULD CREATE A MORE PROFITABLE, FASTER
GROWING COMPANY. Sales of the Miracle-Gro Companies have, over the last five
years, grown at greater than a 13% rate, while net income has increased at more
than a 16% rate. After consulting with the Miracle-Gro Companies' management,
the Company's management believes that Miracle-Gro's growth is sustainable and
that based on the foregoing the combination of the companies should accelerate
the Company's profit growth.
Third, the combination of these companies should open new international
market opportunities. Since its introduction in the United Kingdom five years
ago, Miracle-Gro(R) has become the leading brand of garden plant food in that
market. Miracle-Gro UK, which will become part of New Miracle-Gro in the
Merger Transactions, owns a 32.5% equity interest in Miracle Holdings Limited
("Miracle Holdings"), a newly-created entity which sells Miracle-Gro(R)
products in the United Kingdom, as well as a number of other leading brands of
garden care products formerly manufactured by ICI Zeneca. See "INFORMATION
ABOUT THE MIRACLE-GRO COMPANIES - Business of the Miracle-Gro Companies." In
1994, Miracle Holdings had sales of over $50 million on a pro forma basis.
In addition, Miracle-Gro UK has the option to increase its percentage
ownership from 32.5% to approximately 98% of the equity of Miracle Holdings,
initially for L.35 million. Whether or not that option is exercised, the
Company's management believes that the combination of Miracle-Gro's proven
consumer acceptance in the United Kingdom, and the acceptance of the Company's
products, including Osmocote(R), in the commercial market in Europe shuld give
the combined companies the financial and management resources to accelerate
their growth outside of North America.
Fourth, the Miracle-Gro Companies' profitability, and the fact that
they require very little capital, should result in SUBSTANTIALLY INCREASED FREE
CASH FLOW for the Company. While the Company has not yet decided what uses it
will make of any such cash, the Company plans to consider some or all of the
following: investment in the business, including research and development,
capital expenditures, paying down debt, a common share buyback and a common
share dividend.
Finally, the combination of the Company and the Miracle-Gro Companies
should result in the ENHANCEMENT OF THE COMPANY'S BALANCE SHEET. Since the
Miracle-Gro Companies have relatively little debt, key financial ratios -- and
therefore the Company's credit-worthiness -- will be improved on a pro forma
basis as a result of the Merger Transactions. The Company's banks have
indicated that, in view of the pro forma improvements in cash flow, they may
reduce the Company's marginal interest rate and enter into an amended and
restated credit agreement with terms more favorable to the Company upon the
consummation of the Merger Transactions.
Of course, as in any business transaction, there can be no assurance
that the Company's expectations will be realized.
3
17
OPINION OF FINANCIAL ADVISOR
On January 23, 1995, Smith Barney Inc. ("Smith Barney"), the Company's
financial advisor, delivered its oral opinion (which was subsequently confirmed
in writing as of January 26, 1995) to the effect that the consideration
proposed to be paid in the Merger Transactions by the Company is fair, from a
financial point of view, to the Company. The full text of the written opinion,
which sets forth the assumptions made, procedures followed, matters considered
and scope of the review by Smith Barney in rendering its opinion, is attached
hereto as Appendix II and should be read in its entirety. See "THE MERGER
TRANSACTIONS - Opinion of Financial Advisor" for information regarding, among
other things, the selection of Smith Barney and its compensation in connection
with the Merger Transactions.
VOTE REQUIRED
The consummation of the Merger Transactions is conditioned on, among
other things, the approval of certain matters to be considered at the Annual
Meeting. The shareholders of the Company must approve the Acquisition because,
immediately thereafter, the Miracle-Gro Shareholders will exercise in excess of
one-third of the voting power of the Company. The GCL provides that any
"control share acquisition" of a public company must be submitted to the
company's shareholders. The GCL defines a control share acquisition to include
an acquisition of the Company's shares which would give the acquiring person
voting power falling within one of the following three categories: (a)
one-fifth or more but less than one-third of the voting power, (b) one-third or
more but less than a majority of the voting power, and (c) a majority or more
of the voting power. For the Acquisition to be approved, the affirmative vote
of the holders of a majority of the voting power of the Company represented at
a meeting at which a quorum is present and the affirmative vote of the holders
of a majority of the portion of such voting power excluding "Interested Shares"
is required. "Interested Shares" are defined by the GCL to include shares held
by the Acquiring Person (i.e., the Miracle-Gro Shareholders), shares held by an
officer of the Company elected or appointed by the Board of Directors, shares
held by employees of the Company who are also directors and certain shares
purchased after a control share acquisition is announced. As indicated
elsewhere in this Proxy Statement/Prospectus, officers and directors as a group
own approximately 9% of the Company's outstanding Common Shares. The
Miracle-Gro Shareholders do not currently own any Common Shares of the Company.
See "PROPOSAL TO APPROVE ACQUISITION OF ONE-THIRD OR MORE BUT LESS THAN A
MAJORITY OF THE VOTING POWER OF THE COMPANY - Recommendation and Vote."
In addition, the proposed amendment to the Amended Articles of
Incorporation to authorize the Class A Convertible Preferred Stock must be
approved by the holders of two-thirds of the outstanding Common Shares. See
"PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE AMENDED ARTICLES OF INCORPORATION
- - Recommendation and Vote." The proposed amendments to Section 2.02 of the
Code of Regulations must be adopted by the affirmative vote of the holders of a
majority of the voting power of the Company. See "PROPOSED AMENDMENTS TO
SECTION 2.02 OF THE CODE OF REGULATIONS - Recommendation and Vote."
REGULATORY MATTERS
The Merger Transactions are subject to the applicable provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act").
DISSENTERS' RIGHTS
Shareholders of the Company have no dissenters' rights with respect to
the Merger Transactions, the Reincorporation, the Acquisition or any other
matter to be considered at the Annual Meeting.
The Miracle-Gro Shareholders have unanimously approved the Merger
Transactions. Therefore, none of the Miracle-Gro Shareholders has any
dissenters' rights with respect to the Merger Transactions.
4
18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No gain or loss will be recognized by the Company or the Company's
shareholders for federal income tax purposes as a result of the Merger
Transactions. With respect to the Miracle-Gro Shareholders, the consummation
of the Merger Transactions is conditioned, among other things, upon the receipt
of an opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel to the
Miracle-Gro Companies, to the effect that each of the Merger and the Subsequent
Mergers should constitute a tax-free reorganization pursuant to Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). See "THE MERGER
TRANSACTIONS - Federal Income Tax Consequences."
SUMMARY FINANCIAL DATA
THE COMPANY'S SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto as of September 30, 1993 and 1994 and for the three years ended
September 30, 1994 incorporated by reference herein. The summary historical
financial data as of December 31, 1994 and January 1, 1994, respectively are
derived from unaudited consolidated financial statements incorporated by
reference herein. Such unaudited consolidated financial statements have been
prepared on the same basis as the Company's Consolidated Financial Statements,
and the Company believes that such unaudited consolidated financial statements
contain all adjustments necessary for a fair presentation of the financial
information presented (consisting only of normal recurring adjustments).
Interim results are not necessarily indicative of results for the full year.
Fiscal Year Ended September 30, Three Months Ended
------------------------------------------------ ----------------------
1990 1991 1992 1993(1) 1994(2) 1/1/94(2) 12/31/94
---- ---- ---- ------- ------- --------- --------
(Unaudited) (Unaudited)
(Dollars In Thousands, Except Ratios and Per Share Data)
Statement Of Operations Data:
Net sales . . . . . . . . . . . . $350,441 $388,120 $413,558 $466,043 $ 606,339 $ 68,326 $ 98,019
Gross profit . . . . . . . . . . 163,638 180,164 200,425 221,825 286,609 30,962 44,499
Total operating expenses . . . . 135,868 144,777 158,280 178,004 227,337 30,939 44,169
Income from operations . . . . . 27,770 35,387 42,145 43,821 59,272 23 330
Interest and other expenses . . . 34,531 30,932 15,942 8,454 17,450 2,640 5,694
Income (loss) before income taxes,
extraordinary items and
cumulative effect of accounting
changes . . . . . . . . . . . . (6,761) 4,455 26,203 35,367 41,822 (2,617) (5,364)
Income taxes . . . . . . . . . . 143 2,720 11,124 14,320 17,947 (1,060) (2,226)
Extraordinary items:
Loss on early extinguishment of
debt, net of tax . . . . . . -- -- (4,186) -- (992) -- --
Utilization of net operating
loss carryforwards . . . . . -- 2,581 4,699 -- -- -- --
Cumulative effect of changes in
accounting for post-retirement
benefits, net of tax and income
taxes . . . . . . . . . . . . . -- -- -- (13,157) -- -- --
Net income (loss) . . . . . . . . (6,904) 4,316 15,592 7,890 22,883 (1,557) (3,138)
Net income (loss) per share . . . (0.58) 0.36 0.87 0.40 1.22 (0.08) (0.17)
Other Historical Data:
Depreciation and amortization . . $ 20,474 $ 17,785 $ 15,848 $ 18,144 $ 21,937 $ 4,603 $ 5,801
Capital expenditures . . . . . . 8,494 8,818 19,896 15,158 33,402 4,985 5,012
Ratio of earnings to fixed
charges (3) . . . . . . . . . . (4) 1.14x 2.40x 4.08x 2.89x (6) (5)
Book value per share (7). . . . . (0.49) (0.39) 8.35 7.66 9.01 7.58 8.84
Balance Sheet Data (End Of
Period):
Working capital . . . . . . . . . $ 18,230 $ 21,260 $ 54,795 $ 88,526 $140,566 $ 112,717 $ 135,427
Total assets . . . . . . . . . . 270,429 260,729 268,021 321,590 528,584 508,742 576,618
Long-term debt, including current
portion . . . . . . . . . . . . 192,915 182,954 31,897 92,524 223,885 226,084 223,158
Total shareholders' equity
(deficit) . . . . . . . . . . . (12,677) (9,961) 175,929 143,013 168,160 141,371 165,061
- -------------
(1) Includes Republic from November 19, 1992.
(2) Includes Sierra from December 17, 1993.
(3) The ratio of earnings to fixed charges is computed by dividing (a) the
sum of (i) income from operations before income taxes, extraordinary items
and the cumulative effect of accounting changes and (ii) fixed charges by (b)
fixed charges. Fixed charges consist of interest on all indebtedness
(including amortization of deferred financing costs), capitalized interest
and the estimated interest component of operating leases (assumed to be
one-third of total rental expense).
(4) Reflects a deficiency of earnings to fixed charges of $6.8 million.
(5) Reflects a deficiency of earnings to fixed charges of $5.4 million.
(6) Reflects a deficiency of earnings to fixed charges of $2.6 million.
(7) Book value per share is computed by dividing the number of common shares
outstanding at the end of the period into total shareholders' equity
(deficit) at the end of the period.
5
19
THE MIRACLE-GRO COMPANIES
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following summary historical financial data should be read in
conjunction with the Miracle-Gro Companies' Combined Financial Statements and
Notes thereto as of September 30, 1994 and 1993 and for the three years ended
September 30, 1994, included elsewhere herein. The summary historical combined
financial data as of December 31, 1993 and 1994, respectively are derived from
unaudited consolidated financial statements not included herein or incorporated
by reference. Such unaudited consolidated financial statements have been
prepared on the same basis as the Miracle-Gro Companies' Combined Financial
Statements, and Miracle-Gro's management believes that such unaudited combined
financial statements contain all adjustments necessary for a fair presentation
of the financial information presented (consisting only of normal recurring
adjustments). Interim results are not necessarily indicative of results for the
full year.
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED
----------------------------------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
1990 1991 1992 1993 1994 1993 1994
----------- ----------- ----------- ----------- ------------ ----------- -----------
STATEMENT OF OPERATIONS DATA(1):
Net sales . . . . . . . . . . . . $62,654,541 $72,493,930 $93,146,626 $92,779,345 $107,421,014 $14,078,419 $15,254,564
Gross profit . . . . . . . . . . 29,811,560 35,480,293 46,499,249 45,946,203 55,165,931 7,053,699 7,552,129
Total operating expenses . . . . 16,848,017 17,768,478 21,606,856 22,435,299 25,641,838 3,376,004 4,807,930
Income from operations . . . . . 12,963,543 17,711,815 24,892,393 23,510,904 29,524,093 3,677,695 2,744,199
Interest and other (income)
expenses . . . . . . . . . . . (304,142) (155,257) 77,337 311,934 125,422 (774) 2,656
Income before income taxes . . . 13,267,685 17,867,072 24,815,056 23,198,970 29,398,671 3,678,469 2,741,543
Income taxes . . . . . . . . . . 164,413 284,034 732,204 527,384 489,705 120,000 148,753
Net income . . . . . . . . . . . 13,103,272 17,583,038 24,082,852 22,671,586 28,908,966 3,558,469 2,592,790
OTHER HISTORICAL DATA:
Depreciation and amortization . . $ 183,580 $ 222,100 $ 236,092 $ 243,625 $ 377,239 $ 52,803 $ 108,035
Capital expenditures . . . . . . 342,749 362,389 193,768 412,653 913,509 236,675 113,197
BALANCE SHEET DATA (END OF
PERIOD):
Working capital . . . . . . . . . $17,158,738 $19,984,119 $26,200,156 $24,271,635 $ 30,693,805 $18,628,768 $18,745,052
Total assets . . . . . . . . . . 21,497,019 25,043,036 32,925,169 29,707,050 38,834,668 35,874,372 46,052,013
Long-term debt, including current
portion . . . . . . . . . . . . 0 2,300,000 2,300,000 3,500,000 3,500,000 3,500,000 3,500,000
Total shareholders' equity . . . 18,439,841 19,036,495 23,944,835 22,173,657 29,110,597 16,763,873 17,166,218
- -------------
(1) The Miracle-Gro Companies shareholders have elected to be taxed as Subchapter S Corporations. Accordingly, the summary
historical combined financial data DOES NOT reflect provisions for income taxes that would have been incurred if the
Miracle-Gro Companies had been taxed as C corporations.
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THE COMPANY'S SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data of the Company
and Miracle-Gro should be read in conjunction with the unaudited pro forma
financial data included elsewhere herein. The following summary unaudited pro
forma financial data give effect to the significant prior acquisition of
Grace-Sierra Horticultural Products Company ("Sierra"), which occurred on
December 16, 1993 as if it had occurred on October 1, 1992 and the Merger
Transactions as if they had occurred on October 1, 1993.
THE PRO FORMA INFORMATION AND ACCOMPANYING NOTES SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO WHICH ARE INCORPORATED HEREIN BY REFERENCE AND WITH THE MIRACLE-GRO
COMPANIES' COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
HEREIN. THE PRO FORMA FINANCIAL DATA DOES NOT PURPORT TO REPRESENT WHAT THE
COMPANY'S RESULTS OF OPERATIONS ACTUALLY WOULD HAVE BEEN HAD THE ACQUISITION OF
SIERRA OCCURRED ON OCTOBER 1, 1992 OR THE MERGER TRANSACTIONS OCCURRED ON
OCTOBER 1, 1993 OR TO PROJECT THE COMPANY'S RESULTS OF OPERATIONS FOR ANY
FUTURE PERIOD. THE PRO FORMA FINANCIAL DATA IS BASED ON ESTIMATES OF FINANCIAL
EFFECTS THAT MAY NOT PROVE TO BE ACCURATE OVER TIME.
FISCAL YEAR THREE MONTHS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1994 1994
---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net sales ............................................. $726,231 $ 109,906
Gross profit .......................................... 350,909 50,777
Total operating expenses .............................. 266,388 48,868
Income from operations ................................ 84,521 1,909
Interest expense ...................................... 19,035 5,697
Income (loss) before income taxes
and extraordinary items ............................. 65,486 (3,788)
Income taxes .......................................... 28,722 (1,129)
Net ncome before extraordinary item ................... 36,764 (2,659)
OTHER PRO FORMA DATA:
Depreciation and amortization ......................... 22,314 5,909
Capital expenditures .................................. 34,316 5,125
Earnings per common share - primary and fully diluted.. 1.27 (0.27)
Book value per share (1) .............................. -- 12.58
_____________
(1) Pro forma book value per share as of December 31, 1994 was calculated using the Common Shares outstanding of the
Company of 18,667,064 and the Common Shares issued assuming conversion of the Class A Convertible Preferred Stock of
10,263,158 Common Shares.
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THE ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is furnished to the Company's
shareholders in connection with the solicitation on behalf of the Board of
Directors of the Company of proxies for use at the Annual Meeting to be held at
the Stouffer Dublin Hotel, 600 Metro Place North, Dublin, Ohio 43017, on
Thursday, April 6, 1995, at 10:00 a.m., local time, and at any adjournment or
adjournments thereof. This Proxy Statement/Prospectus and the accompanying
form of proxy were first mailed to shareholders on or about March [8], 1995.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareholders will be asked (i) to consider and
vote upon the acquisition of one-third or more but less than a majority of the
voting power of the Company by the Miracle-Gro Shareholders; (ii) to consider
and act upon a proposal to amend Article FOURTH of the Amended Articles of
Incorporation of the Company to increase the authorized number of Common Shares
to 50,000,000 and to authorize a class of 195,000 voting preferred shares
designated Class A Convertible Preferred Stock; (iii) to consider and act upon
a proposal to amend the Amended Articles of Incorporation by adding new Article
NINTH; (iv) to consider and act upon proposals to amend Sections 2.02 and 6.01
of the Code of Regulations; (v) to elect directors and (vi) to transact such
other business as may properly come before the Annual Meeting.
The Board of Directors has unanimously approved the Merger
Transactions, the Reincorporation, the Acquisition and each of the other
matters to be voted upon at the Annual Meeting. The Board recommends a vote
FOR the Acquisition and each of the other matters described herein and FOR the
election of the directors named herein.
VOTING AT THE MEETING; RECORD DATE
Only holders of record of the Company's Common Shares at the close of
business on the Record Date will be entitled to vote at the Annual Meeting. As
of the Record Date, there were [18,667,064] Common Shares outstanding. Each
Common Share entitles the holder to one vote. A quorum for the Annual Meeting
is a majority of the Common Shares outstanding. In addition, a quorum for
purposes of Proposal No. 1 only also includes a majority of the portion of the
voting power excluding "Interested Shares." See "PROPOSAL TO APPROVE
ACQUISITION OF ONE-THIRD OR MORE BUT LESS THAN A MAJORITY OF THE VOTING POWER
OF THE COMPANY - Recommendation and Vote." There is no cumulative voting.
There are no other voting securities of the Company outstanding.
Common Shares represented by signed proxies that are returned to the
Company will be counted toward the quorum in all matters even though they are
marked as "Abstain," "Against" or "Withhold Authority" on one or more or all
matters or they are not marked at all. Broker/dealers, who hold their
customers' shares in street name, may, under the applicable rules of the
exchange and other self-regulatory organizations of which the broker/dealers
are members, sign and submit proxies for such shares and may vote such shares
on routine matters, which, under such rules, typically include the election of
directors, but broker/dealers may not vote such shares on other matters, which
typically include amendments to the articles of incorporation of the Company
and the approval of stock compensation plans, without specific instructions
from the customer who owns such shares. Proxies signed and submitted by
broker/dealers which have not been voted on certain matters as described in the
previous sentence are referred to as broker non-votes. Such proxies count
toward the establishment of a quorum. THE EFFECT OF AN ABSTENTION OR BROKER
NON-VOTE ON EACH OF THE MATTERS TO BE VOTED UPON AT THE MEETING IS THE SAME AS
A "NO" VOTE.
If the accompanying proxy card is properly signed and returned to the
Company prior to the Annual Meeting and not revoked, it will be voted in
accordance with the instructions contained therein. If no instructions
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are given, the persons designated as proxies in the accompanying proxy card
will vote FOR the election as directors of those persons named below and FOR
all other proposals set forth herein.
The Board of Directors is not currently aware of any matters other
than those referred to herein which will come before the Annual Meeting. If
any other matter should be presented at the Annual Meeting for action, the
persons named in the accompanying proxy card will vote the proxy in their own
discretion.
You may revoke your proxy at any time before it is actually voted at
the Annual Meeting by delivering written notice of revocation to the Secretary
of the Company, by submitting a subsequently dated proxy, or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will
not, in itself, constitute revocation of the proxy.
The expense of preparing, printing and mailing proxy materials to the
Company's shareholders will be borne by the Company. The Company has engaged
Georgeson & Company to assist in the solicitation of proxies from stockholders
at a fee of approximately $10,000 plus reimbursement of reasonable
out-of-pocket expenses. In addition, proxies may be solicited personally or by
telephone by officers or employees of the Company, none of whom will receive
additional compensation therefor. The Company will also reimburse brokerage
houses and other nominees for their reasonable expenses in forwarding proxy
materials to beneficial owners of the Common Shares.
If a shareholder is a participant in The Scotts Company Profit Sharing
and Savings Plan (the "PSP") and Common Shares have been allocated to such
person's account in the PSP, the trustee will vote the allocated Common Shares.
THE MERGER TRANSACTIONS
BACKGROUND OF THE MERGER TRANSACTIONS
Representatives of the Company have inquired of Miracle-Gro's
management periodically whether they would consider a business combination.
In the Fall of 1994, the principals of Miracle-Gro and members of the
Company's senior management began meeting to determine whether there was a
basis for agreement. In September, the Miracle-Gro Companies retained CS First
Boston to provide advice with respect to the possible business combination,
while, in October, the Company determined to pursue this opportunity and
retained Smith Barney to assist in the negotiations. On October 3, 1994, the
Company and Miracle-Gro executed a confidentiality agreement. Thereafter, the
parties periodically discussed the terms of a possible business combination.
Such discussions culminated in the execution of the Agreement on January 26,
1995.
The consideration to be paid by the Company in the Merger Transactions
was determined by arms-length negotiation among the Miracle-Gro Companies, the
Miracle-Gro Shareholders and the Company, after consultation by the Company
with Smith Barney and consultation by the Miracle-Gro Shareholders with
CS First Boston.
REASONS FOR THE MERGER TRANSACTIONS
The Board of Directors believes that the terms of the Merger
Transactions are fair to, and in the best interests of, the Company and its
shareholders. Accordingly, the Board of Directors has approved the Agreement
and the transactions contemplated thereby.
The Board of Directors believes that the Merger Transactions offer
the Company several unique and significant business opportunities that are
consistent with the Company's principal long-term growth strategies to enhance
the Company's position as the leading provider of brand name products for the
consumer lawn and garden and professional turf care markets in the United
States, while substantially expanding the Company's presence and growth
potential in markets overseas. Specifically, the Company's management and the
Board of Directors expect the Company to derive from the Merger Transactions
the following principal benefits:
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First, the Merger Transactions WILL BRING TOGETHER TWO OF THE
STRONGEST BRANDS -- SCOTTS(R) AND MIRACLE-GRO(R) -- IN THE LAWN AND GARDEN
INDUSTRY and should establish the Company as a strong branded
packaged-goods marketer.
Second, the combination SHOULD CREATE A MORE PROFITABLE, FASTER GROWING
COMPANY. Sales of The Miracle-Gro Companies have, over the last five years,
grown at greater than a 13% rate, while net income has increased at more than a
16% rate. After consulting with the Miracle-Gro Companies' management, the
Company's management believes that Miracle-Gro's growth is sustainable and that
based on the foregoing the combination of the companies should accelerate the
Company's profit growth.
Third, the combination of these companies SHOULD OPEN NEW INTERNATIONAL
MARKET OPPORTUNITIES. Since its introduction in the United Kingdom five years
ago, Miracle-Gro(R) has become the leading brand of garden plant food in that
market. Miracle-Gro UK, which will become part of New Miracle-Gro in
the Merger Transactions, owns a 32.5% equity interest in Miracle Holdings, a
newly-created entity which sells Miracle-Gro(R) products in the United Kingdom,
as well as a number of other leading brands of garden care products formerly
manufactured by ICI Zeneca. See "INFORMATION ABOUT THE MIRACLE-GRO COMPANIES -
Business of the Miracle-Gro Companies." In 1994, Miracle Holdings had sales of
over $50 million on a pro forma basis. In addition, Miracle-Gro UK has the
option to increase its percentage ownership from 32.5% to approximately 98% of
the equity of Miracle Holdings, initially for 35 million pounds sterling.
Whether or not that option is exercised, the Company's management believes that
the combination of Miracle-Gro's proven consumer acceptance in the United
Kingdom, and the acceptance of the Company's products, including Osmocote(R),
in the commercial market in Europe should give the combined companies the
financial and management resources to accelerate their growth outside of North
America.
Fourth, the Miracle-Gro Companies' profitability, and the fact that they
requires very little capital, should result in SUBSTANTIALLY INCREASED FREE CASH
FLOW for the Company. While the Company has not yet decided what uses it will
make of any such cash, the Company plans to consider some or all of the
following: investment in the business, including research and development,
capital expenditures, paying down debt, a common share buyback and a common
share dividend.
Finally, the combination of the Company and the Miracle-Gro Companies
should result in the ENHANCEMENT OF THE COMPANY'S BALANCE SHEET. Since the
Miracle-Gro Companies have relatively little debt, key financial ratios -- and
therefore the Company's credit-worthiness -- will be improved on a pro forma
basis as a result of the Merger Transactions. The Company's banks have
indicated that, in view of the pro forma improvements in cash flow, they may
reduce the Company's marginal interest rate and enter into an amended and
restated credit agreement with terms more favorable to the Company upon the
consummation of the Merger Transactions.
Of course, as in any business transaction, there can be no assurance
that the Company's expectations will be realized.
In reaching its decision to approve the Agreement and the transactions
contemplated thereby, the Board of Directors considered, among other things,
(i) information concerning the financial performance, condition, business
operations and prospects of each of the Company and the Miracle-Gro Companies;
(ii) historical market prices and trading information with respect to the
Company's Common Shares; (iii) the expected effect of the Merger Transactions
on the Company's earnings per share based on historical audited financial
statements of the Company and the Miracle-Gro Companies, financial forecasts
prepared by their respective managements and upon the amount and terms of the
Class A Convertible Preferred Stock and the Warrants to be issued in connection
with the Merger Transactions; (iv) the expected enhancement of the Company's
capitalization and cash flows as a result of the addition of Miracle-Gro's
operating cash flows; (v) the potential efficiencies and economies of scale
resulting from the combination to be effected by the Merger Transactions; (vi)
the proposed terms and structure of the Merger Transactions; (vii) the terms of
the Agreement and (viii) the opinion of Smith Barney referred to below (see
"THE MERGER TRANSACTIONS - Opinion of Financial Advisor").
10
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OPINION OF FINANCIAL ADVISOR
The Board of Directors of the Company retained Smith Barney as
exclusive financial advisor to the Company to render certain financial advisory
services to the Company in connection with the Merger Transactions. In
connection with such engagement, the Company requested that Smith Barney
evaluate the fairness to the Company, from a financial point of view, of the
consideration to be paid by the Company in the Merger Transactions. On January
23, 1995, in connection with the evaluation of the proposed Agreement by the
Board of Directors of the Company, Smith Barney delivered its oral opinion
(which was subsequently confirmed in writing by a letter dated January 26, 1995)
to the Board of Directors of the Company to the effect that, as of such date
and based upon and subject to certain matters stated in such opinion, the value
of the consideration to be paid in the Merger Transactions was fair, from a
financial point of view, to the Company.
In arriving at the opinion set forth in its January 26, 1995 letter,
Smith Barney reviewed a copy of the Agreement entered into by the parties
thereto on January 26, 1995. In delivering its oral opinion on January 23,
1995, Smith Barney reviewed a current draft of the Merger Agreement (draft
of January 21, 1995), the terms of which did not vary materially from the
definitive Merger Agreement. Smith Barney held discussions with certain senior
officers, directors and other representatives and advisors of the Company and
certain senior officers and other representatives and advisors of the
Miracle-Gro Companies concerning the businesses, operations and prospects of
the Company and the Miracle-Gro Companies. Smith Barney examined certain
publicly available business and financial information relating to the Company
and certain business and financial information relating to the Miracle-Gro
Companies as well as certain financial forecasts and other data for the Company
and the Miracle-Gro Companies which were provided to Smith Barney by the
respective managements of the Company and the Miracle-Gro Companies. Smith
Barney reviewed the financial terms of the Company as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of the Company's Common Stock; the historical and
projected earnings of the Company and the Miracle-Gro Companies; and the
capitalization and financial condition of the Company and the Miracle-Gro
Companies. Smith Barney considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
Smith Barney considered comparable to the Merger Transactions and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose businesses Smith Barney
considered comparable to those of the Company and the Miracle-Gro Companies.
Smith Barney also evaluated the potential pro forma financial impact of the
Merger Transactions on the Company. In addition to the foregoing, Smith Barney
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Smith Barney deemed necessary to
arrive at its opinion. Smith Barney noted that its opinion was necessarily
based upon information available, and financial, stock market and other
conditions and circumstances existing and disclosed, to Smith Barney as of the
date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and
other information provided to or otherwise discussed with Smith Barney, Smith
Barney has been advised by the respective management of the Company and the
Miracle-Gro Companies that such forecasts and other information were
reasonably prepared on bases reflecting their best currently available
estimates and judgments as to the expected future financial performance of the
Company and the Miracle-Gro Companies. Smith Barney assumed that the Merger
Transactions will be treated as tax-free reorganizations for federal income tax
purposes. Smith Barney's opinion relates to the relative values of the Company
and the Miracle-Gro Companies. Smith Barney did not express any opinion as to
what the value of the consideration to be paid with respect to the Merger
Transactions actually will be when issued pursuant to the Merger Transactions
or the price at which the Company's Common Shares will trade subsequent to the
Merger Transactions. In addition, Smith Barney did not make or obtain an
independent evaluation or appraisal for the assets or liabilities (contingent
or otherwise) of the Company or the Miracle-Gro Companies nor did Smith Barney
make any physical inspection of the properties or assets of the Company or the
Miracle-Gro Companies. Smith Barney was not asked to consider, and its opinion
does not address, the relative merits of the Merger Transactions as compared to
any alternative business strategies that might exist for the Company or the
effect of any other transaction in which
11
25
the Company might engage. In addition, although Smith Barney evaluated the
consideration to be paid in the Merger Transactions from a financial point of
view, Smith Barney was not asked to and did not recommend the specific
consideration payable in the Merger Transactions. No other limitations were
imposed by the Company on Smith Barney with respect to the investigations made
or procedures followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED JANUARY 26,
1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX II AND IS INCORPORATED
HEREIN BY REFERENCE. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE VALUE OF THE CONSIDERATION TO BE PAID IN THE MERGER
TRANSACTIONS FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR
THE USE OF THE BOARD OF DIRECTORS OF THE COMPANY IN ITS EVALUATION OF THE
MERGER TRANSACTIONS, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER
TRANSACTIONS OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY COMPANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ANNUAL
MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In preparing its opinion to the Board of Directors of the Company,
Smith Barney performed a variety of financial and comparative analyses,
including those described below. The summary of such analyses does not purport
to be a complete description of the analyses underlying Smith Barney's opinion.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Smith Barney believes that its analyses must
be considered as a whole and that selecting portions of its analyses and
factors, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and its
opinion. In its analyses, Smith Barney made numerous assumptions with respect
to the Company, the Miracle-Gro Companies, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company and the Miracle-Gro Companies. The
estimates contained in such analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject
to substantial uncertainty.
Comparable Company Analysis
Using publicly available information, Smith Barney analyzed, among
other things, the market values and trading multiples of selected consumer
products companies with a single product brand name, including WD 40 Co., Armor
All, and Eskimo Pie Co., and certain fertilizer and lawn care products
companies, including IMC Global Inc., LESCO Inc., Terra Industries and Vigoro
Corp. (the "Comparable Companies"). Smith Barney compared market values as
multiples of projected net income and adjusted market values
(equity market value, plus total debt and preferred stock, less cash and cash
equivalents) as multiples of, among other things, latest 12 months net revenue
and earnings before interest, taxes, depreciation and amortization ("EBITDA").
Smith Barney also compared historical revenue growth and projected earnings
per share ("EPS") growth of the Comparable Companies with those of the Miracle-
Gro Companies. EPS projections for the Comparable Companies were analyzed
based on the consensus estimates of selected investment banking firms, and
earnings projections for the Miracle-Gro Companies were analyzed based on
internal estimates of the management of the Miracle-Gro Companies as adjusted by
Scotts management. An analysis of multiples of projected calendar 1995 net
income yielded a range of 9.1x to 16.1x with a mean of 12.9x, as compared to
approximately 9.7x for the Miracle-Gro Companies. An analysis of multiples of
latest 12 months EBITDA yielded a range of 5.3x to 12.7x with a mean of 8.9x,
as compared to approximately 6.6x for the Miracle-Gro Companies. An analysis
of five year historical annual sales growth resulted in a range of (2.6%) to
11.8% with a mean of 4.7%, as compared to approximately
12
26
13.7% for the Miracle-Gro Companies. An analysis of projected five-year annual
earnings growth yielded a range of 7.2% to 22.5% with a mean of 12.6%, as
compared to in excess of 15% for the Miracle-Gro Companies. All multiples were
based on closing stock prices as of January 19, 1995.
Selected Merger and Acquisition Transactions Analysis
Using publicly available information, Smith Barney analyzed the
purchase prices and implied transaction multiples in 16 selected mergers and
acquisition transactions announced between 1990 and 1995, including Snapple
Beverage Corp./Quaker Oats Co. and Neutrogena Corp./Johnson & Johnson in the
single-product brand name consumer products industry and Grace- Sierra
Horticultural/Scotts Co. and Chevron Chemical Company-Ortho/Monsanto Co. in the
fertilizer and lawn and garden care products industry (the "Selected
Acquisitions"). Smith Barney compared transaction values as multiples of
latest 12 month revenue and EBITDA. An analysis of multiples of latest 12 month
revenue for the Selected Acquisitions yielded a range of 1.0x to 3.3x, with a
mean of 2.1x, as compared to approximately 2.0x for the Miracle-Gro Companies
(for fiscal 1994). An analysis of the multiples to EBITDA for the Selected
Acquisitions yielded a range of 7.7x to 19.4x, with a mean of 9.0x, as
compared to approximately 6.6x for the Miracle-Gro Companies (for fiscal 1994).
No company, transaction or business used in the comparable company and
selected merger and acquisitions transactions analyses as a comparison is
identical to the Company, the Miracle-Gro Companies or the Merger Transactions.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition or public trading value of the
comparable companies or the business segment or company to which they are being
compared.
Discounted Cash Flow Analysis
Smith Barney performed discounted cash flow analyses of the projected
Miracle-Gro Companies' cash flows for the fiscal years ended September 30, 1995
through 1999, assuming, among other things, discount rates of 10% to 14%, and
terminal multiples of 5x to 7x of EBITDA. Utilizing these assumptions
Smith Barney arrived at an equity valuation reference range for the Miracle-Gro
Companies of approximately $266 million to $403 million.
Pro Forma Merger Analysis
Smith Barney analyzed certain pro forma effects resulting from the
Merger Transactions assuming a March 31, 1995 closing, including, among other
things, the impact of the Merger Transactions on the projected EPS of the
Company for the fiscal years ended 1995 through 1999. The results of the pro
forma merger analysis suggest that the Merger Transactions would be break-even
with respect to EPS for fiscal 1994, break even with respect to consensus EPS
estimates of selected investment banking firms for fiscal 1995 and accretive
for 1996 through 1999. The actual results achieved by the combined company may
vary from projected results and the variations may be material.
Other Facts and Comparative Analyses
In rendering its opinion, Smith Barney considered certain other factors
and conducted certain other comparative analyses, including, among other
things, a review of (i) the historical and projected financial results of the
Company and the Miracle-Gro Companies, (ii) the history of trading prices for
the Company's Common Stock; and (iii) the expected effect of the Merger
Transactions on selected credit statistics of the Company.
Pursuant to the terms of Smith Barney's engagement, the Company has
agreed to pay Smith Barney $450,000 upon delivery of its fairness opinion and a
transaction fee of $1.8 million (reduced by the amount paid in respect of the
delivery of the fairness opinion) upon consummation of the transaction. In the
event the transactions
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27
contemplated by the Agreement are not consummated and the Company
receives compensation in respect thereof, Smith Barney is entitled to receive
a termination fee equal to 10% of such compensation (reduced by the amount paid
in respect of the delivery of the fairness opinion). The Company also has
agreed to reimburse Smith Barney for travel and other out-of-pocket expenses
incurred by Smith Barney in performing its services, including the fees and
expenses of its legal counsel, and has agreed to indemnify Smith Barney and
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's engagement.
Smith Barney has advised the Company that, in the ordinary course of
business, it may actively trade the equity and debt securities of the Company
for its own account or for the account of its customers and, accordingly, may
at any time hold a long or short position in such securities.
Smith Barney is a nationally recognized investment banking firm and
was selected by the Company based on Smith Barney's experience and expertise.
Smith Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material federal income
tax consequences of the Merger Transactions. The discussion is based on the
Code, judicial decisions and administrative regulations, rulings and practices,
all of which are subject to change. The following does not address any state,
local or foreign income and other tax consequences of the Merger Transactions.
Neither the Company nor the holders of the Company's Common Shares
will recognize any gain or loss for federal income tax purposes as a result of
the Merger Transactions.
With respect to the Miracle-Gro Shareholders, the consummation of the
Merger Transactions is conditioned, among other things, upon the receipt of an
opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel to the
Miracle-Gro Companies, to the effect that each of the Merger and the Subsequent
Mergers should constitute a tax-free reorganization pursuant to Section 368(a)
of the Code. Such opinion will be conditioned and based on certain statements
and representations which are expected to be made at the Effective Time by
executives of the Miracle-Gro Companies and the Company, and is subject to the
assumptions and limitations described therein. The opinion will not be binding
on the Internal Revenue Service, nor will it preclude the Internal Revenue
Service from taking a contrary position. Subject to these limitations, the
following is a summary of the material federal income tax consequences of the
Merger Transactions:
i) each of the Merger Transactions should constitute a reorganization
within the meaning of Section 368(a) of the Code, and the Company,
Merger Subsidiary and each Miracle-Gro Company should each be a party
to the respective reorganizations of which they are a part within the
meaning of Section 368(b) of the Code;
ii) no gain or loss should be recognized by the shareholders of a
Miracle-Gro Company upon their receipt of shares of Class A
Convertible Preferred Stock in a Merger Transaction in exchange for
their shares of stock of the relevant Miracle- Gro Company;
iii) each shareholder of a Miracle-Gro Company should, with respect to each
Merger Transaction, recognize taxable income equal to the lesser of
(x) the fair market value of the Warrants received by such shareholder
in exchange for such shareholder's shares of stock of the relevant
Miracle-Gro Company and (y) the difference between the aggregate fair
market value of the shares of Class A Convertible Preferred Stock and
the Warrants received by such shareholder in such Merger Transaction
and such shareholder's tax basis in the stock of the relevant
Miracle-Gro Company exchanged therefor;
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iv) the tax basis of a shareholder of a Miracle-Gro Company in the shares
of Class A Convertible Preferred Stock received by such shareholder
should be the same as such shareholder's tax basis in the stock of
such Miracle-Gro Company exchanged therefor, decreased by the fair
market value of the Warrants received and increased by any taxable
income recognized by such shareholder in respect of such Merger
Transactions;
v) the tax basis of a shareholder of a Miracle-Gro Company in the
Warrants received by such shareholder will be equal to the fair market
value of the Warrants received; and
vi) the holding period of the shares of Class A Convertible Preferred
Stock in the hands of a shareholder of a Miracle-Gro Company should
include the holding period of such shareholder's shares of stock of
such Miracle-Gro Company exchanged therefor.
The foregoing summary of federal income tax consequences is included
herein for general information only and does not address the federal income tax
consequences to all categories of Miracle-Gro Shareholders. EACH MIRACLE-GRO
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER TRANSACTIONS, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger Transactions will be accounted for by the Company under the
"purchase" method of accounting in accordance with generally accepted
accounting principles.
THE AGREEMENT
This section of the Proxy Statement/Prospectus describes certain
aspects of the Agreement. The following description, however, does not purport
to be complete and is qualified in its entirety by reference to the Agreement
itself which is attached hereto as Appendix I and is incorporated herein by
reference. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Agreement.
TERMS OF THE AGREEMENT
Pursuant to the Agreement, (1) Merger Subsidiary shall be merged with
and into Miracle-Gro, whereupon Miracle-Gro will be the surviving corporation
and a wholly-owned subsidiary of the Company; (2) immediately thereafter, (x)
Nurseries will transfer all of its assets, including but not limited to all of
its intellectual property rights, but none of its liabilities, to Miracle-Gro
and (y) Miracle-Gro Delaware and Miracle-Gro UK will each merge with and into
Miracle-Gro; and (3) immediately thereafter, Miracle-Gro shall be merged with
and into New Miracle-Gro, which shall be the ultimate surviving corporation
under the name "Scotts' Miracle-Gro Products, Inc." In connection with the
Merger Transactions, the Miracle-Gro Shareholders, as a group, will receive in
the aggregate 195,000 shares of Class A Convertible Preferred Stock and three
separate series of warrants (collectively, the "Warrants"). See "DESCRIPTION
OF THE CAPITAL STOCK OF THE COMPANY - Class A Convertible Preferred Stock" and
"THE WARRANTS." As of the Effective Time of the Merger Transactions, the Class
A Convertible Preferred Stock will be convertible into approximately 35% of the
Company's Common Shares on a fully-diluted basis and the Warrants will be
exercisable for an additional 3,000,000 of the Company's Common Shares, which,
if exercised, would enable them to exercise, together with the Class A
Convertible Preferred Stock, approximately 42% of the Total Voting Power.
As a result of the Merger Transactions and as provided by the GCL and
other applicable law, all the property, rights, privileges, powers and
franchises of the Miracle-Gro Companies will vest in New
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Miracle-Gro, as the ultimate surviving corporation, and all debts, liabilities
and duties of Miracle-Gro, Miracle-Gro Delaware and Miracle-Gro UK will become
the debts, liabilities and duties of New Miracle-Gro, as the ultimate surviving
corporation.
REPRESENTATIONS AND WARRANTIES
The Agreement includes various customary representations and
warranties of the parties for transactions of this type. These include, among
other things, representations and warranties by Miracle-Gro and the Miracle-Gro
Shareholders as to (i) the Miracle-Gro Companies' organization and foreign
qualification to do business; (ii) execution, delivery and performance by the
Miracle-Gro Companies of the Agreement and its valid and binding nature; (iii)
the unanimous approval of the Merger Transactions by all of the outstanding
capital shares of the Miracle-Gro Companies; (iv) non-contravention of the
organizational documents of the Miracle-Gro Companies, provisions of applicable
law or agreements and required consents and approvals; (v) the capitalization
of the Miracle-Gro Companies; (vi) the accuracy of the financial statements of
the Miracle-Gro Companies and other information provided to the Company; (vii)
the absence of certain changes and the conduct of the business of the
Miracle-Gro Companies since September 30, 1994; (viii) the absence of
undisclosed material liabilities; (ix) pending or threatened litigation; (x)
proper payment of taxes and the status of the Miracle-Gro Companies as S
corporations (other than Nurseries) within the meaning of Section 1361(a)(1) of
the Code; (xi) ERISA plans and liability; (xii) trademarks, patents, copyrights
and other intellectual property rights; (xiii) material contracts; (xiv)
compliance with applicable law; (xv) finders' fees; and (xvi) environmental
compliance.
With certain limited exceptions, the representations and warranties by
the Company and Merger Subsidiary mirror the representations and warranties by
Miracle-Gro and the Miracle-Gro Shareholders. In addition, the Company and
Merger Subsidiary make representations and warranties as to (i) the Company's
public financial statements and documents filed with the Commission and (ii)
receipt of a fairness opinion from Smith Barney.
The representations and warranties of each of the parties contain,
variously, customary carve-outs for materiality, knowledge and previously
disclosed information.
COVENANTS
Pursuant to the Agreement, the Miracle-Gro Companies and the Miracle-
Gro Shareholders, on the one hand, and the Company and Merger Subsidiary, on
the other, have made various covenants customary for transactions of this type,
including (i) conduct of their respective businesses from the date of the
Agreement through the Effective Time; (ii) access to information and
confidentiality; (iii) solicitation or negotiation of competing offers; and
(iv) notice of certain events. In addition, the parties have made certain
joint covenants with respect to (a) using their best efforts to consummate the
transactions contemplated by the Agreement; (b) cooperating in connection with
the preparation of this Proxy Statement/Prospectus and obtaining all requisite
consents, approvals or waivers; (c) public announcements; (d) further
assurances; (e) responsibility for preparing and filing various pre- and
post-Effective Time tax returns; and (f) the qualification of the Merger
Transactions as tax-free reorganizations within the meaning of Section 368(a)
of the Code. In addition, the parties have agreed that prior to the Effective
Time the Miracle-Gro Companies shall distribute $22 million to the Miracle-Gro
Shareholders, which amount represents the estimated earnings of the Miracle-Gro
Companies from October 1, 1994 through the Effective Time. The Miracle-Gro
Companies may borrow funds to finance the payment of such distribution, and
such distribution shall be made whether or not the earnings actually equal or
exceed $22 million for such period. To the extent that such earnings exceed
$22 million, the Company shall indemnify, or gross-up, the Miracle-Gro
Shareholders for taxes on up to $1 million of excess earnings by the
Miracle-Gro Companies from October 1, 1994 through the Effective Time.
The covenants of each of the parties contain, variously, customary
carve-outs for materiality, knowledge and previously disclosed information.
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STANDSTILL PROVISIONS
The Agreement provides for certain voting rights of and certain voting
restrictions on the Miracle-Gro Shareholders. The Agreement also limits the
ability of the Miracle-Gro Shareholders to acquire additional Voting Stock of
the Company or to transfer the Class A Convertible Preferred Stock, the
Warrants or the underlying Common Shares. These provisions will have a
significant effect on the management and day-to-day operations of the Company.
Investors in the Company, therefore, should consider carefully, in addition to
the other information contained in this Proxy Statement/Prospectus, the
following provisions:
Board of Directors
The Agreement provides that, assuming that the shareholders of the
Company approve Proposal Nos. 4 and 5 herein, the Miracle-Gro Shareholders,
through the Shareholder Representative, shall be entitled to designate three
directors (one in each of the newly created classes) (the "Miracle-Gro
Directors") to sit on a newly expanded twelve person Board of Directors.
Thereafter, until the earlier of the fifth anniversary of the Effective Time
(the "Standstill Period") and such time as Miracle-Gro Shareholders no longer
beneficially own at least 19% of the Voting Stock, the Shareholder
Representative will continue to be entitled to designate three of twelve
members of the Board of Directors. To the extent that the Company maintains an
Executive Committee and/or a Nominating Committee, such committee(s) shall
consist of four members, one of which shall be a Miracle-Gro Director. In
addition, to the extent that any of the Miracle-Gro Directors is qualified,
under the applicable requirements of the Code, the by-laws of the National
Association of Securities Dealers, Inc. or otherwise, to sit on the Audit or
Compensation Committees of the Board of Directors or any newly created
committee, one of such Miracle-Gro Directors shall be entitled to sit on such
committee(s) to the same extent, and on the same basis, as the other members of
the Board of Directors. Following the Standstill Period or such time as the
Miracle- Gro Shareholders cease to own at least 19% of the Voting Stock, the
Miracle-Gro Shareholders will have no contractual right to, and the Company
will not be able to restrict, the election of directors.
Voting Restrictions
Until the earlier of the end of the Standstill Period and such time as
the Miracle-Gro Shareholders cease to own at least 19% of the Voting Stock, the
Miracle-Gro Shareholders will be required to vote their shares of Class A
Convertible Preferred Stock and Common Shares (i) for the Company's nominees to
the Board of Directors, in accordance with the recommendation of the Board of
Directors' Nominating Committee and (ii) on all matters to be voted on by
holders of Voting Stock, in accordance with the recommendation of the Board of
Directors, except with respect to a proposal as to which shareholder approval
is required under the GCL relating to (a) the acquisition of Voting Stock of
the Company, (b) a merger or consolidation, (c) a sale of all or substantially
all of the assets of the Company, (d) a recapitalization of the Company or (e)
an amendment to the Company's Amended Articles of Incorporation or Code of
Regulations which would materially adversely affect the rights of the
Miracle-Gro Shareholders. The Company has agreed that, without the prior
consent of the Shareholder Representative, it shall not (x) issue Voting Stock
(or Voting Stock equivalents) constituting in the aggregate more than 12.5% of
Total Voting Power (other than pursuant to employee benefit plans in the
ordinary course of business) or (y) in a single transaction or a series of
related transactions, make any acquisition or disposition of assets which would
require disclosure pursuant to Item 2 of Form 8-K under the Exchange Act;
provided, however, that if five-sixths of the Board of Directors determine that
it is in the best interests of the Company to make an acquisition pursuant to
clause (y), such acquisition may be made without the consent of the Shareholder
Representative. In addition, during the Standstill Period, the Miracle-Gro
Shareholders will be limited in their ability to enter into any voting trust
agreement without the Company's consent or to solicit proxies or become a
participant in any election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) relating to the election of directors of
the Company. Following the Standstill Period or such time as the Miracle-Gro
Shareholders cease to own at least 19% of the Voting Stock, the voting
restrictions provided in the Agreement will expire. Each of the Miracle-Gro
Shareholders (other than John Kenlon) has previously entered into an agreement
to contribute his or her shares to a limited partnership (the "Partnership"),
which is described below under "MIRACLE-GRO
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SHAREHOLDER LIMITED PARTNERSHIP." It is anticipated that all shares of
Voting Stock held by the Partnership will be voted as a block.
Standstill Restrictions
The Agreement provides that during the Standstill Period, the
Miracle-Gro Shareholders shall not acquire, directly or indirectly, beneficial
ownership of Voting Stock representing more than 43% of Total Voting Power.
For purposes of calculating beneficial ownership of Voting Stock against the
Standstill Percentage, Common Shares underlying unexercised Warrants or any
subsequently granted employee stock options will not be included. However, the
terms of the Warrants provide (and the terms of any such employee stock options
likely will provide) that, if exercised during the Standstill Period and to the
extent that such exercise would increase the aggregate beneficial ownership of
the Miracle-Gro Shareholders to more than 43% of Total Voting Power, such
exercise may only be for cash and not for Common Shares. See "THE WARRANTS."
To the extent that a recapitalization of the Company or a Common Share
repurchase program by the Company increases the aggregate beneficial ownership
of the Miracle-Gro Shareholders to an amount in excess of 44% of Total Voting
Power, the Miracle-Gro Shareholders will be required to divest themselves of
sufficient shares of Voting Stock to fall within the 44% of Total Voting Power
limit. The Company has agreed that it will use reasonable efforts to ensure
that employee stock options are funded with Common Shares repurchased in the
open market rather than newly issued Common Shares.
The Miracle-Gro Shareholders have agreed that, after the Standstill
Period, they will not acquire, directly or indirectly, beneficial ownership of
Voting Stock representing more than 49% of Total Voting Power except pursuant
to a tender offer for 100% of Total Voting Power, which tender offer is
conditioned upon the receipt of at least a majority of the Voting Stock
beneficially owned by shareholders of the Company other than the Miracle-Gro
Shareholders and their Affiliates and Associates.
Restrictions on Transfers
During the Standstill Period, the Agreement provides that no
Miracle-Gro Shareholder may transfer any Common Shares upon conversion of the
Class A Convertible Preferred Stock or exercise of the Warrants, except (i) to
the Company or any Person approved by the Company; (ii) to a Permitted
Transferee who agrees in writing to abide by the provisions of the Agreement;
(iii) pursuant to a merger or consolidation of the Company or a plan of
liquidation which has been approved by the Company's Board of Directors; (iv)
in a bona fide public offering registered under the Securities Act and designed
to prevent any Person or group from acquiring beneficial ownership of 3% or
more of Total Voting Power; (v) subject to the Company's right of first offer,
pursuant to Rule 145 or Rule 144A under the Securities Act, provided that such
sale would not knowingly result in any Person or group's acquiring beneficial
ownership of 3% or more of Total Voting Power and all such sales by the
Miracle-Gro Shareholders within the preceding three months would not exceed, in
the aggregate, the greatest of the limits set forth in Rule 144(e)(1) under the
Securities Act; (vi) in response to a tender offer made by or on behalf of the
Company or with the approval of the Company's Board of Directors; or (vii)
subject to the Company's right of first offer, in any other transfer which
would not to the best knowledge of the transferring Miracle-Gro Shareholder
result in any Person or group's acquiring beneficial ownership of 3% or more of
Total Voting Power.
Neither the Class A Convertible Preferred Stock nor, during the
Standstill Period, the Warrants may be transferred except (i) to the Company or
any Person or group approved by the Company; (ii) to a Permitted Transferee who
agrees in writing to abide by the provisions of the Agreement; (iii) pursuant
to a merger or consolidation of the Company or a plan of liquidation; or (iv)
with respect to Class A Convertible Preferred Stock representing no more than
15% of the Voting Stock on a fully diluted basis or any number of Warrants: (A)
subject to the Company's right of first offer, pursuant to Rule 145 or Rule
144A under the Securities Act, provided that such sale would not knowingly
result in any Person or group's acquiring beneficial ownership of 3% or more of
Total Voting Power and all such sales by the Miracle-Gro Shareholders within
the preceding three months would not exceed, in the aggregate, the greatest of
the limits set forth in Rule 144(e)(1) under the Securities Act; or (B) subject
to the Company's right of first offer, in any other transfer which would not to
the best knowledge of the
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transferring Miracle-Gro Shareholder result in any Person or group's acquiring
beneficial ownership of 3% or more of Total Voting Power. For purposes of
clauses (A) and (B) only, the Company's right of first offer with respect to
shares of Class A Convertible Preferred Stock would be at a price equal to (x)
the aggregate Market Price of the Common Shares into which such shares of Class
A Convertible Preferred Stock could be converted at the time of the applicable
Transfer Notice multiplied by (y) 105%.
Following the Standstill Period, the Warrants and the Common Shares
underlying the Warrants and the Class A Convertible Preferred Stock are freely
transferable, subject to the requirements of the Securities Act and applicable
law.
CONDITIONS
The respective obligations of the Company, Merger Subsidiary,
Miracle-Gro and the Miracle-Gro Shareholders to consummate the Merger
Transactions are conditioned upon, among other things, (i) the Company's
receipt of a consent under the Third Amended and Restated Revolving Credit
Agreement, dated as of April 7, 1992, as amended, among the Company, the Banks
listed therein and Chemical Bank, as Agent, and the provisions therein relating
to restricted payments, operating and financial condition ratios and events of
default having been amended in contemplation of the transactions contemplated
by the Agreement in a manner reasonably satisfactory to the Miracle-Gro
Companies; (ii) the Company's receipt of a consent by certain holders of the
Company's outstanding 9-7/8% Senior Subordinated Notes due August 1, 2004,
pursuant to the terms of the Indenture dated as of June 1, 1994, as
supplemented, between the Company and Chemical Bank, as trustee; (iii) the
approval by the Company's shareholders of Proposal Nos. 1, 2, 4 and 5 as set
forth in this Proxy Statement/Prospectus; (iv) expiration or termination of the
applicable waiting period under the HSR Act; (v) the absence of any applicable
law or regulation or judgment, injunction, order or decree which prohibits the
consummation of the Merger; (vi) the receipt of all material required
authorizations, consents, waivers, orders or approvals and the making of all
material required filings, notices and declarations; and (vii) the registration
statement on Form S-4 relating to the sale of the Class A Convertible Preferred
Stock and the Warrants having been declared effective.
The obligations of the Company and Merger Subsidiary to consummate the
Merger Transactions are further conditioned upon, among other things, (i) the
material accuracy of the representations and warranties of the Miracle-Gro
Companies and the Miracle-Gro Shareholders and the material performance by them
of their respective agreements and covenants required by the Agreement, along
with receipt by the Company of a certificate signed by the Chief Executive
Officer and Chief Financial Officer of Miracle-Gro to such effect; (ii) the
absence of any material adverse change in the business, results of operations
or condition (financial or otherwise) of the Miracle-Gro Companies and a
certificate of the Chief Executive Officer of Miracle-Gro to such effect; and
(iii) the receipt by the Company of Employment Agreements executed by Horace
Hagedorn, John Kenlon and James Hagedorn (see "ELECTION OF DIRECTORS -
Executive Compensation - Miracle-Gro Employment Agreements").
The obligations of Miracle-Gro and the Miracle-Gro Shareholders to
consummate the Merger Transactions are further conditioned upon, among other
things, (i) the material accuracy of the representations and warranties of the
Company and Merger Subsidiary and the material performance by them of their
respective agreements and covenants required by the Agreement, along with
receipt by Miracle-Gro of a certificate signed by the Chief Executive Officer
and Chief Financial Officer of the Company to such effect; (ii) the absence of
any material adverse change in the business, results of operations or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole,
and a certificate of the Chief Executive Officer of the Company to such effect;
and (iii) the receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom,
substantially in the form attached to the Agreement, to the effect that each of
the Merger and the Subsequent Mergers should constitute a tax-free
reorganization under Section 368(a) of the Code.
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WAIVERS AND AMENDMENTS
The conditions to consummation of the Merger Transactions may be
waived at any time by the party or parties for whose benefit they were created.
Except in certain limited circumstances, the Agreement may be amended at any
time by written agreement of the parties.
TERMINATION
The Agreement may be terminated and the Merger Transactions may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Proposals contained in this Proxy Statement/Prospectus) (i) by mutual
written consent of the parties thereto; (ii) by any party if the Merger has not
been consummated by September 30, 1995; (iii) by any party if, prior to the
Effective Time, the Market Price of the Company's Common Shares shall be less
than the Target Amount for ten consecutive trading days, the "Target Amount"
being the lesser of $12 per share and the amount determined by multiplying $12
by a percentage equal to 100% minus the percentage decline, if any, in the
Standard & Poors 500 Index from the date of the Agreement through the beginning
of the ten consecutive trading day period; (iv) by any party in the event of
any law or regulation prohibiting the Merger or of any final and unappealable
judgment, injunction, order or decree enjoining the Company or any Miracle-Gro
Company from consummating any of the Merger Transactions; and (v) by any party
upon a breach of any representation, warranty, covenant or agreement on the
part of the other party, or if any representation or warranty of the other
party becomes untrue, in each case such that the conditions set forth above
under "THE AGREEMENT - Conditions" would be incapable of being satisfied by
September 30, 1995. In the event of termination, the Agreement shall become
void except that certain provisions relating to confidentiality and expenses
shall survive such termination.
INDEMNIFICATION
The Agreement provides that, subject to certain time limitations (in
the case of the tax representations, until expiration of the applicable
statutory period of limitations, and in the case of all other representations
until the Effective Time), Miracle-Gro and each Miracle-Gro Shareholder, on the
one hand, and the Company and Merger Subsidiary, on the other, have agreed to
indemnify, defend and hold the other party harmless from any and all damage,
loss, liability and expense (including, without limitation, reasonable expenses
of investigation and reasonable attorneys' fees and expenses) incurred or
suffered by such other party as a result of any misrepresentation or breach of
warranty, covenant or agreement contained in the Agreement. There are no
monetary limitations on such indemnification.
EXPENSES
Whether or not the Merger Transactions are consummated, all costs and
expenses incurred in connection with the Agreement will be borne by the party
incurring them. All applicable sales, use or transfer taxes, if any, and all
capital gains or income taxes of the Miracle-Gro Shareholders or any
Miracle-Gro Company that may be due and payable as a result of any of the
Merger Transactions or the transactions contemplated by the Agreement, whether
levied on the Company, Merger Subsidiary, any Miracle-Gro Company or any
Miracle-Gro Shareholder, shall be borne by the Miracle-Gro Shareholders.
MIRACLE-GRO SHAREHOLDER LIMITED PARTNERSHIP
The Miracle-Gro Shareholders (other than John Kenlon) have agreed to
form the Partnership and contribute the Company's securities they receive
pursuant to the Merger Transactions to such partnership. Such Miracle-Gro
Shareholders, other than Horace Hagedorn, will be the initial general partners
of the Partnership. The partnership interest of Horace Hagedorn will be a
non-voting limited partnership interest, which Mr. Hagedorn presently intends
to contribute to charity. The partners have agreed that certain matters,
including the disposition of the Company's securities, if such disposition would
result in the Partnership's owning less than 35% of the then outstanding voting
power of the Company, will require a supermajority vote of the general partners,
and
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have agreed to certain restrictions on the transfer of interests in the
Partnership. The Miracle-Gro Shareholders and John Kenlon have entered into an
agreement under which Mr. Kenlon has granted the Partnership an irrevocable
proxy on the Company's securities he receives pursuant to the Merger
Transactions, and has granted the Partnership a right of first refusal on
transfers of such securities.
PROPOSAL NO. 1
PROPOSAL TO APPROVE ACQUISITION OF ONE-THIRD OR MORE BUT LESS
THAN A MAJORITY OF THE VOTING POWER OF THE COMPANY
The Miracle-Gro Shareholders, according to the acquiring person
statement provided by them to the Company pursuant to Section 1701.831 of the
GCL, do not currently own any Common Shares of the Company. As described above
(see "THE AGREEMENT"), at the Effective Time of the Merger Transactions they
will receive 195,000 shares of Class A Convertible Preferred Stock of the
Company. Each share of Class A Convertible Preferred Stock is entitled to that
number of votes per share equal to the number of Common Shares into which such
Class A Convertible Preferred Stock could be converted at the date of
determination. As of the date hereof, each share of Class A Convertible
Preferred Stock would be entitled to approximately 52.6 votes per share. See
"DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY - Class A Convertible
Preferred Stock." As a result, immediately following the Merger Transactions,
the Miracle-Gro Shareholders, as a group, would be able to exercise
approximately 35% of the voting power of the Company.
Section 1701.831 of the GCL defines a "control share acquisition" to
include an acquisition of the Company's shares which would give the acquiring
person voting power falling within one of the following three categories: (a)
one-fifth or more but less than one-third of the voting power, (b) one-third or
more but less than a majority of the voting power, and (c) a majority or more
of the voting power. See "PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS." The
Acquisition constitutes such a "control share acquisition." Pursuant to the
GCL, approval of any "control share acquisition" of a public company must be
submitted to the company's shareholders. The Miracle-Gro Shareholders have
delivered to the Company the acquiring person statement required by the GCL, a
copy of which is attached hereto as Appendix III and made a part hereof. At
the Annual Meeting, shareholders of the Company will be asked to consider a
proposal to allow the Miracle-Gro Shareholders, as a group, to complete a
"control share acquisition" with respect to the Company's shares.
EFFECT OF APPROVAL OF ACQUISITION
If the Acquisition is approved and the Merger Transactions are
consummated, the Miracle-Gro Shareholders also will receive Warrants to
purchase an additional 3,000,000 Common Shares of the Company. Approval of the
Acquisition will enable the Miracle-Gro Shareholders to acquire additional
voting securities of the Company, on exercise of the Warrants or otherwise, so
long as they do not acquire securities evidencing more than a majority of the
voting power of the Company. Until the fifth anniversary of the Effective Time
of the Merger, however, the Miracle-Gro Shareholders have agreed that they will
not acquire securities having more than 43% (or, in certain limited
circumstances, 44%) of the voting power of the Company. See "THE AGREEMENT -
Standstill Provisions - Standstill Restrictions" for additional restrictions on
the power of the Miracle-Gro Shareholders to acquire additional Common Shares
of the Company.
RECOMMENDATION AND VOTE
For the Acquisition to be approved, the affirmative vote of the
holders of a majority of the voting power of the Company represented at the
Annual Meeting and the affirmative vote of the holders of a majority of the
portion of such voting power excluding "Interested Shares" is required. At
least a majority of the voting power of the Company, and a majority of the
portion of such voting power excluding the voting power of "Interested Shares,"
must be represented at the Annual Meeting in person or by proxy. "Interested
Shares" are defined by the GCL to include (i) shares held by the Acquiring
Person (i.e., the Miracle-Gro Shareholders, as a group), (ii) shares held by
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an officer of the Company elected or appointed by the Board of Directors, (iii)
shares held by employees of the Company who are also directors and (iv) shares
purchased after a control share acquisition is announced if the aggregate
consideration paid by the person acquiring such shares exceeds $250,000 or the
number of shares acquired exceeds one-half of one percent of the voting power
of the Company. As indicated elsewhere in this Proxy Statement/Prospectus,
officers and directors as a group own approximately 9% of the Company's
outstanding Common Shares, and the Miracle-Gro Shareholders do not currently
own any outstanding Common Shares.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION
OF THE PROPOSED CONTROL SHARE ACQUISITION OF ONE-THIRD OR MORE BUT LESS THAN A
MAJORITY OF THE VOTING POWER OF THE COMPANY.
PROPOSAL NO. 2
PROPOSED AMENDMENT TO ARTICLE FOURTH OF
THE AMENDED ARTICLES OF INCORPORATION
PROPOSED AMENDMENT
The Amended Articles of Incorporation of the Company currently
authorize 35,000,000 shares, all of which are Common Shares, each without par
value. Each Common Share entitles the holder thereof to one vote on each
matter properly submitted to the shareholders for their vote.
The Board of Directors proposes that the shareholders adopt an
amendment to the Amended Articles of Incorporation increasing the authorized
number of Common Shares from 35,000,000 shares to 50,000,000 shares and
authorizing 195,000 voting preferred shares designated Class A Convertible
Preferred Stock. Proposed amended Article FOURTH is set forth in Appendix IV
attached hereto and made a part hereof. The following summary of the proposed
amendment is qualified in its entirety by reference to Appendix IV.
The terms of the Class A Convertible Preferred Stock were negotiated
with the Miracle-Gro Shareholders and are part of the Agreement. Dividends
will be payable on the Class A Convertible Preferred Stock at the rate of
$50.00 per share per year. Dividends will be cumulative and will be payable
quarterly. In the event that the Company fails to pay all or any portion of
the accrued but unpaid dividends for two consecutive quarters, the Miracle-Gro
Shareholders shall be entitled to elect three additional directors until such
time as the accrued but unpaid dividends are paid to the holders of the Class A
Convertible Stock, at which time such new directors shall be removed and the
Board of Directors shall be reduced to the number in effect immediately prior
to the increase. In the event of liquidation, dissolution or winding up of the
Company, the holders of the Class A Convertible Preferred Stock will be
entitled to receive $1,000 per share, plus accumulated unpaid dividends, before
any amount will be paid to the holders of the Common Shares. Each share of
Class A Convertible Preferred Stock will be entitled to the number of votes
equal to the number of Common Shares into which it is convertible and will vote
together with the Common Shares as a single class. Each share of the Class A
Convertible Preferred Stock will be convertible at any time into the number of
Common Shares determined by dividing $1,000 by the Conversion Price, initially
$19 per Common Share subject to adjustment in the event of stock dividends,
stock splits, share combinations, asset distributions, recapitalizations and
similarly dilutive events. See "DESCRIPTION OF THE CAPITAL STOCK - Class A
Convertible Preferred Stock." The Class A Convertible Preferred Stock will be
subject to redemption at any time after five years from the date of issuance,
for $1,000 per share plus accrued unpaid dividends.
EFFECT OF ADOPTION OF AMENDMENT
Pursuant to the Agreement, the 195,000 shares of Class A Convertible
Preferred Stock are to be issued to the Miracle-Gro Shareholders. The current
Amended Articles of Incorporation do not authorize a class of preferred shares.
Therefore, the Merger Transactions cannot be consummated unless this amendment
to the Amended Articles of Incorporation is adopted.
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The existing shareholders will have no preemptive rights to acquire
any of the shares to be issued in connection with the Merger Transactions.
If the proposed amendment is adopted, the additional Common Shares
will be available, free from any preemptive rights, for issuance from time to
time to such persons and for such considerations as the Board of Directors may
determine, without necessarily requiring further action by the shareholders.
The Common Shares may be used for various corporate purposes, including stock
splits and dividends, acquisitions, public offerings and stock options and
other employee benefit plans. Depending on the terms thereof, the issuance of
the additional Common Shares and preferred shares may have a dilutive effect on
the equity interest of the Company's then-existing shareholders. Except for
the transactions described herein, there are no present plans to issue any of
the additional Common Shares which will be authorized by the adoption of the
amendment to Article FOURTH, nor are there any pending negotiations,
discussions, agreements or understandings which would involve the issuance of
any of such shares.
RECOMMENDATION AND VOTE
The affirmative vote of the holders of two-thirds of the outstanding
Common Shares is required to approve the amendment.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT.
PROPOSAL NO. 3
PROPOSED AMENDMENT TO ADOPT NEW ARTICLE NINTH
OF THE AMENDED ARTICLES OF INCORPORATION
PROPOSED AMENDMENT
If adopted, Article NINTH would require the affirmative vote of at
least two-thirds (2/3) of the voting power of the Company to authorize any
of the following transactions: (1) a further amendment to Article NINTH of the
Amended Articles of Incorporation, (2) a merger or consolidation of the Company
with another corporation and requiring shareholder approval, (3) a combination
or majority share acquisition involving the issuance of shares of the Company
and requiring shareholder approval, (4) a sale or other disposition of all or
substantially all of the assets of the Company and (5) a dissolution of the
Company. On all other matters, the affirmative vote of a majority of the
voting power of the Company would be required. Proposed Article NINTH is set
forth in Appendix V attached hereto and made a part hereof.
EFFECT OF ADOPTION OF AMENDMENT
Under Ohio law and the Amended Articles of Incorporation, each of the
transactions listed above currently requires the affirmative vote of at least
two-thirds (2/3) of the voting power of the Company. The proposed amendment
fixes this voting requirement in the Amended Articles of Incorporation so that
it cannot be affected by changes in Ohio law. In addition, the proposed
amendment will make the adoption of future amendments to the Amended Articles
of Incorporation -- other than an amendment to change the vote required to
authorize the listed transactions -- easier by reducing the vote required from
two-thirds (2/3) to a majority.
RECOMMENDATION AND VOTE
The affirmative vote of the holders of two-thirds of the outstanding
Common Shares is required to approve the amendment.
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YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT.
PROPOSAL NOS. 4 AND 5
PROPOSED AMENDMENTS TO SECTION 2.02
OF THE CODE OF REGULATIONS
PROPOSED AMENDMENTS TO SUBPARAGRAPHS (A) AND (B) (PROPOSAL NO. 4)
Ohio law permits the regulations of an Ohio corporation to provide for
the classification of directors into separate classes of not fewer than three
directors per class. The Board of Directors proposes to amend Subparagraphs
(A) and (B) of Section 2.02 of the Code of Regulations by deleting them in
their entirety and substituting therefor new Subparagraphs (A) and (B). The
proposed amendments are set forth in Appendix VI attached hereto and made a
part hereof. The following summary of the proposed amendment is qualified in
its entirety by reference to Appendix VI.
Under existing Section 2.02(A) and (B) of the Company's Code of
Regulations, the number of directors is nine; the number of directors can be
changed by the affirmative vote of the holders of a majority of the voting
shares of the Company; directors serve for terms of one year and each director
is elected annually for a term of one year.
The proposed amendments to Section 2.02(A) and (B) provide that, until
changed as provided in Section 2(C) of the Amended Articles of Incorporation,
by action of the directors or by amendment of the Code of Regulations, the
number of directors shall be nine, divided into three uniform classes. If the
amendment is adopted, three directors will be elected to serve initially for
one year, three directors will be elected to serve initially for two years and
three directors will be elected to serve for three years. The election of each
class will be a separate election. At each annual meeting after the 1995
Annual Meeting, directors will be elected to serve for terms of three years so
that the term of one class of directors shall expire in each year.
PROPOSED AMENDMENT TO SUBPARAGRAPH (C) (PROPOSAL NO. 5)
Existing Section 2.02(C) of the Code of Regulations gives the
directors the power to change the number of directors and to fill any vacancy
which is created by an increase in the number of directors; provided, however,
that the number of directors may not be less than three. The proposed
amendment to Section 2.02(C) eliminates the authority of the directors to
increase the number of directors to more than twelve. The proposed amendment
to Section 2.02(C) is set forth in Appendix VI attached hereto and made a part
hereof.
EFFECT OF ADOPTION OF AMENDMENTS
Pursuant to the Agreement, the Company has agreed, as soon as
practicable after the Effective Time of the Merger Transactions, to take such
action as may be necessary to increase the number of directors to twelve,
divided into three classes of four directors each, and to fill the vacancy in
each class with a director designated by the Miracle-Gro Shareholder
Representative. See "THE AGREEMENT - Standstill Provisions - Board of
Directors." It is currently anticipated that Horace Hagedorn, John Kenlon and
James Hagedorn will be elected directors of the Company following the Merger
Transactions. See "ELECTION OF DIRECTORS - Miracle-Gro Directors."
Approval of the proposed amendments to Subparagraphs (A), (B) and (C)
of Section 2.02 is a condition precedent to the Merger Transactions. If either
of the proposed amendments to Section 2.02 is not adopted, the Merger
Transactions cannot be consummated unless the Company, Merger Subsidiary,
Miracle-Gro and the Miracle-Gro Shareholders agree to waive the condition
precedent.
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Although there has been no significant problem of continuity in the
past, the establishment of three-year terms provides for the greatest possible
degree of continuity of director service, and may assist in attracting
qualified candidates for election as directors.
A classified board may deter certain mergers, tender offers or other
future takeover attempts which some or a majority of shareholders may deem to
be in their best interests. In addition, a classified board would generally
prevent shareholders who do not approve of the policies of the Board of
Directors from replacing a majority of the Board for two years, unless they can
obtain the vote of the holders of two- thirds of the voting power to amend the
Code of Regulations to eliminate the classified board. The amendments, if
adopted, would be applicable to every election of directors, not just to
elections occurring after a change in control of the Company. See "PROTECTION
AGAINST NON-NEGOTIATED TAKEOVERS."
If the proposed amendment to Subparagraphs (A) and (B) of Section 2.02
is adopted, the shareholders could change the number of directors only by
amending the Code of Regulations. See "PROPOSED AMENDMENT TO SECTION 6.01 OF
THE CODE OF REGULATIONS."
RECOMMENDATION AND VOTE
The affirmative vote of the holders of a majority of the outstanding
Common Shares is required to adopt the amendments.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL
NO. 4 AND PROPOSAL NO. 5.
PROPOSAL NO. 6
PROPOSED AMENDMENT TO SECTION 6.01
OF THE CODE OF REGULATIONS
PROPOSED AMENDMENT
Currently, Section 6.01 of the Code of Regulations provides that the
Regulations can be amended, or new Regulations adopted, by the affirmative vote
of the holders of a majority of the voting power of the Company. If the
proposed amendment to Subparagraphs (A) and (B) of the Code of Regulations is
adopted, it is proposed to amend Section 6.01 to increase the vote required to
amend Sections 1.02 (Calling of Meetings), 2.02 (Number of Directors and Term
of Office) and 6.01 (Amendments) to two-thirds of the voting power of the
Company. If the proposed amendment to Subparagraphs (A) and (B) of Section
2.02 of the Code of Regulations is not adopted, it is proposed to amend Section
6.01 to increase the vote required to amend only Sections 1.02 and 6.01 to
two-thirds. The proposed amendments to Section 6.01 of the Code of Regulations
are set forth in Appendix VII attached hereto and made a part hereof.
EFFECT OF ADOPTION OF AMENDMENT
Section 1.02 of the Regulations provides that the holders of a
majority of the voting power of the Company can call a meeting of shareholders.
Under Ohio law, a lesser percentage of the voting power could call a
shareholders' meeting if the Regulations so specified. The proposed amendment
will make it more difficult to amend Section 1.02 to reduce the percentage of
the voting power required to call a meeting.
The proposed amendment will also protect the classified board in new
Section 2.02(A) and (B) if it is adopted. As noted above, the classified board
may deter certain mergers, tender offers or other future takeover attempts
which some or a majority of shareholders may deem to be in their best
interests. In addition, a classified board would generally prevent
shareholders who do not approve of the policies of the Board of Directors from
replacing a majority of the Board for two years, unless they can obtain the
vote of the holders of two-thirds of the
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voting power to amend the Code of Regulations to eliminate the classified
board. See "PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS." If Subparagraphs
(A) and (B) of Section 2.02 are not amended to create a classified board, the
proposed amendment to Section 6.01 will not include Section 2.02.
Finally, the proposed amendment will make it more difficult to amend
the Code of Regulations in the future by increasing to two-thirds the vote
required to adopt such amendments.
RECOMMENDATION AND VOTE
The affirmative vote of the holders of a majority of the outstanding
Common Shares is required to adopt the amendment.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT.
PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS
The proposal to amend the Code of Regulations to classify the Board of
Directors, together with the proposed amendment to Section 6.01 of the
Regulations to protect the classified board and the procedure for calling
shareholder meetings, may have an anti-takeover impact and may make tender
offers, proxy contests and certain mergers more difficult. See "PROPOSED
AMENDMENTS TO SECTION 2.02 OF THE CODE OF REGULATIONS" and "PROPOSED AMENDMENT
TO SECTION 6.01 OF THE CODE OF REGULATIONS."
Except for the Acquisition, the Board of Directors is not aware of any
efforts to obtain control of the Company or to effect substantial accumulations
of the Common Shares.
The Amended Articles of Incorporation and Code of Regulations of the
Company do not presently contain any provisions intended by the Company to have
or, to the knowledge of the Board of Directors having, an anti-takeover effect.
Ohio law, however, contains several provisions, applicable to the Company,
which are designed to encourage potential acquirors to make financially
attractive, non-coercive offers and to negotiate directly with the Board of
Directors. The following paragraphs outline these Ohio statutory provisions
and their effects.
Section 1701.831 of the GCL (the "Ohio Control Share Acquisition
Statute") requires shareholder approval of any proposed "control share
acquisition" of an Ohio corporation. A "control share acquisition" is the
acquisition, directly or indirectly, by any person (including any individual,
partnership, corporation, limited liability company, society, association or
two or more persons who have a joint or common interest) of shares of a
corporation that, when added to all other shares of the corporation that may be
voted, directly or indirectly, by the acquiring person, would entitle such
person to exercise or direct the exercise of 20% or more (but less than 33
1/3%) of the voting power of the corporation in the election of directors or 33
1/3% or more (but less than a majority) of such voting power or a majority or
more of such voting power. Under the GCL, the control share acquisition must
be approved in advance by the holders of a majority of the outstanding voting
shares represented at a meeting at which a quorum is present and by the holders
of a majority of the portion of the outstanding voting shares represented at
such a meeting excluding the voting shares owned by the acquiring shareholder
and certain "interested shares," including shares owned by officers elected or
appointed by the directors of the corporation and by directors of the
corporation who are also employees of the corporation.
The purpose of the Ohio Control Share Acquisition Statute is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover. The provisions of the Ohio Control Share Acquisition
Statute grant to the shareholders of the Company the assurance that they will
have adequate time to evaluate the proposal of the acquiring person, that they
will be permitted to vote on the issue of authorizing the acquiring person's
purchase program to go forward in the same manner and with the same proxy
information that would be available to them if a proposed merger of the Company
were before them and, most importantly, that the interests of all shareholders
will be taken
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into account in connection with such vote and the probability will be increased
that they will be treated equally regarding the price to be offered for their
Common Shares if the implementation of the proposal is approved.
The Ohio Control Share Acquisition Statute applies not only to
traditional tender offers but also to open market purchases, privately
negotiated transactions and original issuances by an Ohio corporation, whether
friendly or unfriendly. The procedural requirements of the Ohio Control Share
Acquisition Statute could render approval of any control share acquisition
difficult in that a majority of the voting power of the Company, EXCLUDING
"interested shares," must be represented at the meeting and must be voted in
favor of the acquisition. It is recognized that any corporate defense against
persons seeking to acquire control may have the effect of discouraging or
preventing offers which some shareholders might find financially attractive.
On the other hand, the need on the part of the acquiring person to convince the
shareholders of the Company of the value and validity of his offer may cause
such offer to be more financially attractive in order to gain shareholder
approval.
Chapter 1704 of the GCL (the "Merger Moratorium Statute") generally
prohibits a wide range of business combinations and other transactions
(including mergers, consolidations, asset sales, loans, disproportionate
distributions of property and disproportionate issuances or transfers of shares
or rights to acquire shares) between an Ohio corporation and a person that
owns, alone or with others, shares representing at least 10% of the voting
power of the corporation (an "Interested Shareholder") for a period of three
years after such person becomes an Interested Shareholder, unless, prior to the
date that the Interested Shareholder became such, the directors approve either
the transaction or the acquisition of the corporation's shares that resulted in
the person becoming an Interested Shareholder. Following the three-year
moratorium period, the corporation may engage in covered transactions with an
Interested Shareholder only if, among other things, (i) the transaction
receives the approval of the holders of 2/3 of all the voting shares and the
approval of the holders of a majority of the voting shares held by persons
other than an Interested Shareholder or (ii) the remaining shareholders receive
an amount for their shares equal to the higher of the highest amount paid in
the past by the Interested Shareholder for the corporation's shares or the
amount that would be due the shareholders if the corporation were to dissolve.
The Merger Moratorium Statute is designed to prevent many of the self-dealing
activities that often accompany highly-leveraged acquisitions by prohibiting an
Interested Shareholder from using the corporation or its assets or shares for
his special benefit. The Merger Moratorium Statute will encourage potential
tender offerors to negotiate with the Board of Directors of the Company to
ensure that the shareholders of the Company receive fair and equitable
consideration for their shares. However, the Merger Moratorium Statute
presents potential pitfalls for unwary shareholders. Close attention to the
impact of common corporate actions, such as the grant of employee stock options
and loans to Interested Shareholders in the ordinary course of business, is
necessary to determine whether such actions are encompassed by the Merger
Moratorium Statute.
Because the Board of Directors has approved the Acquisition, the
Merger Moratorium Statute will not be triggered by the Acquisition.
Section 1707.041 of the GCL provides in part that no offeror may make
a control bid pursuant to a tender offer or a request or invitation for tenders
unless, on the day the offeror commences a control bid, it files with the Ohio
Division of Securities (the "Securities Division") and the target company
certain information in respect of the offeror, his ownership of the company's
shares and his plans for the company (including, among other things, plans to
terminate employee benefit plans, close any plant or facility or reduce the
work force). If the Securities Division determines that the offeror's
disclosures are inadequate, it must act within three calendar days from the
date of the offeror's filing to issue a suspension order. If a bid is
suspended, a hearing must be held within ten calendar days from the date of the
Securities Division's suspension order. The hearing procedure must be
completed no later than sixteen calendar days after the date on which the
suspension was imposed. A control bid is the purchase of or offer to purchase
any equity security of an issuer with certain connections to Ohio from a
resident of Ohio if (i) after the purchase of such security, the offeror would
directly or indirectly be the beneficial owner of more than 10% of any class of
the issued and outstanding equity securities of the issuer or (ii) the offeror
is the issuer, there is a pending control bid by a person other than the issuer
and the number of the issued and outstanding shares of the company would be
reduced by more than 10%. Section 1707.041 does not apply when
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the offeror or the target company is a bank, a bank holding company or a
savings and loan holding company and the control bid is subject to approval by
the appropriate federal regulatory agency.
Section 1707.043 of the Ohio Revised Code (the "Profit Recovery
Statute") permits an Ohio corporation to recover any profit realized from the
disposition of equity securities of the corporation by a person or group who
made a proposal to acquire control of the corporation within eighteen months
before the disposition of the equity securities. Certain profits are not
recoverable pursuant to the Profit Recovery Statute, including profits that do
not exceed $250,000 in the aggregate, profits with respect to securities that
were acquired prior to April 11, 1990 or more than eighteen months prior to the
date on which the acquisition proposal was made and profits realized by a
person or group that establishes in court that its motives were not
manipulative.
Neither Section 1707.041 nor 1707.043 is applicable to the
Acquisition.
PROPOSAL NO. 7
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
If the proposed amendment to Subparagraphs (A) and (B) of Section 2.02
of the Code of Regulations of the Company is adopted, three directors will be
elected initially for terms of one year, three directors will be elected
initially for terms of two years and three directors will be elected for terms
of three years, as indicated below. The election of each class of directors
shall be a separate election. If the proposed amendment to Subparagraphs (A)
and (B) of Section 2.02 of the Code of Regulations of the Company is not
adopted, nine directors will be elected for a term of one year. See "PROPOSED
AMENDMENTS TO SECTION 2.02 OF THE CODE OF REGULATIONS."
The Board of Directors of the Company has no reason to believe that
any of the nominees will not serve if elected, but if any of them should become
unavailable or unable to serve as a director, and if prior to the Annual
Meeting, the Board designates a substitute nominee, the persons named in the
accompanying proxy card will vote for the substitute nominee designated by the
Board.
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each director during
the last five years has been furnished to the Company by each director. Except
where indicated, each director has had the same principal occupation for the
last five years. All of the directors were first appointed or elected at the
various dates set forth below and have been elected annually since their
respective appointments.
Information Concerning Nominees as of January 15, 1995:
Proposed Class I Directors (one year terms):
THEODORE J. HOST, age 49 President, Chief Operating Officer
and Director of the Company since 1991
Prior to joining the Company, Mr. Host was Senior Vice President,
Marketing with Coca-Cola USA from 1990 to 1991 and was with American Home
Products, Inc. for twenty-three years, serving as President of the Boyle-Midway
Household Products division for five years before joining Coca-Cola USA.
Committee Membership: None at this time
KAREN GORDON MILLS, age 41 Director of the Company since 1994
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Ms. Mills is President of MMP Group, Inc., a management company that
monitors equity investments and provides consulting and investment banking
services. From 1983 to 1993, she served as Managing Director at E.S. Jacobs
and Company and as Chief Operating Officer of its Industrial Group. Ms. Mills
is currently on the boards of Triangle Pacific Corp., Armor All Products, Inc.
and Arrow Electronics, Inc.
Committee Membership: Nominating
TADD C. SEITZ, age 53 Chairman of the Board, Chief
Executive Officer and Director of the Company since 1987
Mr. Seitz has been the Chief Executive Officer of the Company since
1987. He was also President of the Company's main operating subsidiary from
1983 until 1991. Previously, Mr. Seitz served as the Company's Director of
Marketing and as General Manager of The W. Atlee Burpee Company. Mr. Seitz has
been employed by the Company for twenty-one years. Mr. Seitz also serves as a
director of Holophane Corporation.
Committee Membership: Executive (Chairman) and Nominating
Proposed Class II Directors (two year terms):
JAMES B BEARD, age 59 Director of the Company since 1989
Dr. Beard is Professor Emeritus of Turfgrass Physiology and Ecology at
Texas A&M University where he served from 1975 to 1992. Presently, he is
President and Chief Scientist at the International Sports Turf Institute. Dr.
Beard is the author of six books and over 500 scientific articles on turfgrass
science and is an active lecturer and consultant both nationally and
internationally. He is a Fellow of the American Association of the Advancement
of Science and was the first President of the International Turfgrass Society.
Committee Membership: Audit
JOHN M. SULLIVAN, age 59 Director of the Company since 1994
Mr. Sullivan was Chairman of the Board from 1987 to 1993, and
President and Chief Executive Officer from 1984 to 1993, of Prince Holdings,
Inc., a corporation which, through its subsidiaries, manufactures sporting
goods. Since his retirement from Prince Holdings, Inc. and its subsidiaries
in 1993, Mr. Sullivan has served as an independent director for various
corporations, none of which, other than the Company, is registered under or
subject to the requirements of the Exchange Act or the Investment Company Act
of 1940.
Committee Membership: Compensation and Nominating
L. JACK VAN FOSSEN, age 57 Director of the Company since 1993
Mr. Van Fossen has been President and Chief Executive Officer of Red
Roof Inns, Inc., an owner and operator of motels, since 1991. From 1988 to
1991, Mr. Van Fossen was self-employed as an independent business consultant.
Mr. Van Fossen also serves as a director of Cardinal Health, Inc.
Committee Membership: Audit
Proposed Class III Directors (three year terms):
JOHN S. CHAMBERLIN, age 66 Director of the Company since 1989
Since 1988, Mr. Chamberlin has served as an advisor for investment
firms. In 1990 and 1991, he was Chief Executive Officer of N.J. Publishing,
Inc. He has been Senior Advisor to Mancuso & Co. since 1990,
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Chairman of Life Fitness Co. since 1992, Chairman of WNS, Inc. since 1993 and a
director of Healthsouth Corporation since 1993. He was also a director of The
Travelers Insurance Company until December, 1993 and was a director of Curaflex
Health Services, Inc. from 1992 to July 1994.
Committee Memberships: Executive and Compensation
JOSEPH P. FLANNERY, age 62 Director of the Company since 1987
Mr. Flannery was a consultant to Clayton, Dubilier & Rice, Inc. from
September 1988 to December 1990. Mr. Flannery has been President, Chief
Executive Officer and Chairman of the Board of Directors of Uniroyal Holding,
Inc. since 1986. Mr. Flannery is also a director of Ingersoll Rand Company,
Kmart Corporation, Newmont Mining, Newmont Gold Company, Arvin Industries, Inc.
and APS Holding Corporation.
Committee Membership: Compensation (Chairman)
DONALD A. SHERMAN, age 43 Director of the Company since 1988
Mr. Sherman has been President of Waterfield Mortgage Company in Fort Wayne,
Indiana, since 1989.
Committee Membership: Audit (Chairman)
RECOMMENDATION AND VOTE
Under Ohio law and the Company's Code of Regulations, the three
nominees for election in each class (or the nine nominees if the proposed
amendment to Subparagraphs (A) and (B) of Section 2.02 is not adopted)
receiving the greatest number of votes will be elected.
Common Shares represented by the accompanying proxy card will be voted
FOR the election of the above nominees unless authority to vote for one or more
nominees is withheld. Shareholders may withhold authority to vote for the
entire slate as nominated or, by writing the name of one or more nominees in
the space provided in the proxy card, withhold the authority to vote for such
nominee or nominees. Common Shares as to which the authority to vote is
withheld and broker non-votes will be counted for quorum purposes but will not
be counted toward the election of directors, or toward the election of the
individual nominees specified on the form of proxy.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
ABOVE NOMINEES.
MIRACLE-GRO DIRECTORS
As noted above (see "THE AGREEMENT - Standstill Provisions - Board of
Directors"), the Company has agreed, as soon as practicable after the Effective
Time of the Merger Transactions, to take such action as may be necessary to
increase the number of directors to twelve and to elect the persons named below
for the terms indicated below (or for one-year terms if only the proposal to
amend Subparagraph (C) of Section 2.02 of the Code of Regulations is adopted
and the parties waive the amendment of Subparagraphs (A) and (B) of Section
2.02 of the Code of Regulations as a condition precedent to the Merger
Transactions):
HORACE HAGEDORN, age 79
Horace Hagedorn founded Miracle-Gro in 1950, and has been an owner of
the company since that time. He has served as Chief Executive Office of
Miracle-Gro since 1985. Previously, he was Senior Vice President at the SSC&B
advertising agency. Prior to that he worked in sales at the National
Broadcasting Company. His philanthropic interests include the "Miracle-Gro
Kids" program, in which 50 needy fifth grade children are fully
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sponsored through a four-year college scholarship. He serves as a Trustee on
the boards of the North Shore University Hospital and the Institute for
Community Development, both in Manhasset, New York, and the board of the
Buckley Country Day School in Roslyn, New York. Mr. Hagedorn's recognitions
include the "Man of the Year" award from the National Lawn and Garden
Distributors Association, and the Distinguished Service Medal from the Garden
Writers of America Association. He was elected New York Regional Area
"Entrepreneur of the Year" in 1993. Horace Hagedorn is the father of James
Hagedorn.
JOHN KENLON, age 63
John Kenlon has been the President of Miracle-Gro since December 1985;
President of Miracle-Gro UK since its incorporation in May 1992; and Vice
Chairman of the Board and Executive Vice President of Miracle-Gro Delaware
since its incorporation in November 1993. Mr. Kenlon began his association
with Miracle-Gro in 1960 when the corporate sales totaled $125,000.
JAMES HAGEDORN, age 39
James Hagedorn has been Executive Vice President of Miracle-Gro since
1989 and a Director of Miracle-Gro since 1985. He is also President of
Miracle-Gro Delaware and Executive Vice President of Miracle-Gro UK. Mr.
Hagedorn became a director and principal of Miracle-Gro Products in 1985. He
was previously an officer and an F-16 pilot in the United States Air Force.
Mr. Hagedorn also serves on the boards of Miracle Holdings Ltd., and Miracle
Garden Care, both U.K. companies. He is also a board member of several
not-for-profit corporations, including: The Farms for City Kids Foundation,
Clark Botanic Garden, Children's House and North Shore University Hospital.
Mr. Hagedorn is Chairman of the Sands Point, NY Zoning Board of Appeals.
James Hagedorn is the son of Horace Hagedorn.
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table furnishes certain information as of January 15,
1995 (except as otherwise noted), as to the Common Shares beneficially owned by
each of the nominees for election as a director of the Company, by each of the
executive officers of the Company named in the Summary Compensation Table and
by all directors and executive officers of the Company as a group, and, to the
Company's knowledge, by the only person beneficially owning more than 5% of the
outstanding Common Shares.
Amount and Nature of Beneficial Ownership(1)
Common Shares Which
Common Can be Acquired
Shares Upon Exercise of Percent of Class
Name of Beneficial Owner or Presently Options Exercisable ------------------
Number of Persons in Group Held Within 60 Days Total 1/15/95 Post-Merger
-------------------------- ---------- ------------------- ----- ------- -----------
Government of Singapore Investment 1,135,500(3) 0 1,135,500(3) 6.08%(3) 3.92%(3)
Corporation Pte Ltd
250 North Bridge Road
#33-00
Raffles City Tower
Singapore 0607
James B Beard 16,727 8,000 24,727 (4) (4)
John S. Chamberlin 22,727 8,000 30,727 (4) (4)
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45
Joseph P. Flannery 25,454 8,000 33,454 (4) (4)
Theodore J. Host (5) 45,454(6) 216,222 261,676 1.38% (4)
Karen Gordon Mills 0 0 0 (4) (4)
Tadd C. Seitz(5) 462,454 127,389 589,843 3.14% 2.03%
Donald A. Sherman 22,727 8,000 30,727 (4) (4)
John M. Sullivan 1,000 4,000 5,000 (4) (4)
L. Jack Van Fossen 1,200 4,000 5,200 (4) (4)
J. Blaine McKinney(5) 1,100 40,666 41,766 (4) (4)
Richard B. Stahl(5) 77,545(7) 21,890 99,435 (4) (4)
Paul D. Yeager(5) 140,885(8) 27,538 168,423 (4) (4)
All directors and
executive officers 1,244,123(9) 473,705 1,717,828 8.97% 5.84%
as a group (18 persons)
_____________
(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power as to all of the Common Shares reflected in the
table.
(2) The percent of class is based upon the sum of 18,667,064 Common Shares
outstanding on January 15, 1995, and the number of Common Shares as to
which the named person has the right to acquire beneficial ownership
upon the exercise of options exercisable within 60 days of January 15,
1995.
(3) Based on information contained in Amendment No. 1 to a Schedule 13D
dated October 18, 1994 filed with the Commission, Government of
Singapore Investment Corporation Pte Ltd, an agency of the Singapore
government and an investment manager, shares voting and investment
power with respect to 803,000 Common Shares with the Government of
Singapore, shares voting and investment power with respect to 303,500
Common Shares with the Monetary Authority of Singapore and shares
voting and investment power with respect to 29,000 Common Shares with
the Board of Commissioners of Currency, Singapore.
(4) Represents ownership of less than 1% of the outstanding Common Shares
of the Company.
(5) Executive officer of the Company named in the Summary Compensation
Table.
(6) Includes 45,454 Common Shares which were issued to Mr. Host at the
time of his employment by the Company and which are pledged to Bank
One, N.A.
(7) Includes 25,000 Common Shares held in the Richard B. Stahl and Nancy
E. Stahl 1992 Charitable Remainder Trust. In his capacity as trustee
of said Trust, Mr. Stahl exercises sole voting and investment power
with respect to such Common Shares. Also includes 1,000 Common Shares
held by the son of Mr. Stahl who shares his home.
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46
(8) Includes 100 Common Shares held by each of Mr. Yeager's wife and his
two daughters who share his home.
(9) See Notes (6), (7) and (8) above. Also includes Common Shares held by
the respective spouses of executive officers of the Company and by
their children who reside with them.
To the Company's knowledge, based solely on a review of the copies of
the reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1994 (the
"1994 Fiscal Year"), all filing requirements applicable to officers, directors
and greater than 10% beneficial owners of the Company under Section 16(a) of
the Exchange Act were complied with.
EXECUTIVE OFFICERS
The executive officers of the Company, their positions as of January
31, 1995, their ages and years with the Company (and its predecessors) are set
forth below.
Years with
the Company (and
Name Age Position(s) Held its Predecessors)
---- --- ---------------- -----------------
Tadd C. Seitz 53 Director, Chairman of the Board and 22
Chief Executive Officer
Theodore J. Host 49 Director, President and Chief Operating 3
Officer
Paul D. Yeager 56 Executive Vice President and Chief 20
Financial Officer
Richard B. Stahl 59 Senior Vice President, 27
Professional Business Group
J. Blaine McKinney 51 Senior Vice President, 2
Consumer Business Group
Bernard R. Ford 51 Vice President, Strategy and 16
Business Development
Michael P. Kelty 44 Senior Vice President, 15
Technology and Operations
Lawrence M. McCartney 54 Vice President, 20
Information Systems
Lisle J. Smith 38 Vice President, 1
Administration and Planning
Robert A. Stern 52 Vice President, 12
Human Resources
Craig D. Walley 51 Vice President, Corporate Communications, 10
General Counsel and Secretary
Robert M. Webb 52 Vice President, 14
Manufacturing & Logistics
Executive officers serve at the discretion of the Board of Directors
(and, in the case of Mr. Host, pursuant to an Employment Agreement). See
"Executive Compensation - Company Employment Agreements."
The business experience of each of the persons listed above during the
past five years is as follows:
On January 23, 1995, Mr. Seitz submitted his resignation as Chief
Executive Officer of the Company to be effective as of the date of the 1995
Annual Meeting. Mr. Seitz has been the Chief Executive Officer of the Company
since 1987. He was also President of the Company's main operating subsidiary
from 1983 until 1991. Previously, Mr. Seitz served as the Company's Director
of Marketing and as General Manager of The W. Atlee Burpee Company.
On January 23, 1995, the Board of Directors of the Company appointed
Mr. Host as successor to Mr. Seitz as Chief Executive Officer of the Company
effective as of the date of the 1995 Annual Meeting. Mr. Host has been
President and Chief Operating Officer of the Company since 1991. From 1990 to
1991, he was Senior Vice President, Marketing for Coca-Cola USA. He was
President of the Boyle-Midway Household Products Division of American Home
Products, Inc. for five years before joining Coca-Cola USA.
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47
Mr. Yeager has been an Executive Vice President of the Company since 1991
and a Vice President and the Chief Financial Officer of the Company and its
predecessors since 1980. He was first Assistant Comptroller and then
Comptroller of the Company's predecessor from 1974 to 1980.
Mr. Stahl has been Senior Vice President, Professional Business Group,
of the Company since 1994. From 1987 to 1994, he was Vice President and
General Manager of the Company's Professional Business Group. Mr. Stahl joined
the Company in 1967 as a technical representative in the golf course division.
Mr. McKinney has been Senior Vice President, Consumer Business Group,
of the Company since 1992. From 1990 to 1992, he was Vice President of
Marketing and Sales of Salov, N.A., a manufacturer of consumer products. From
1989 to 1990, he was Director of Sales of Rickett & Colman, Ltd., a consumer
products company.
Mr. Ford has been Vice President, Strategy and Business Development of
the Company since 1987. Other positions that Mr. Ford has held with the
Company and its predecessors include Director of Market Development, Director
of Export Marketing Services and Director of Marketing.
Dr. Kelty has been Senior Vice President, Technology and Operations,
of the Company since 1994. From 1988 to 1994, he served first as Director,
then as Vice President of Research and Development of the Company. Prior to
that, Dr. Kelty was the Director of Advanced Technology Research of the
Company, and from 1983 to 1987 he was Director, Chemical Technology Development
of the Company and its predecessors.
Mr. McCartney has been Vice President, Information Systems, of the
Company since 1989. He joined the predecessor of the Company in 1974 as
Systems and Programming Manager, and was Director, Information Systems, of the
Company and its predecessors from 1976 until 1989.
Mr. Smith has been Vice President, Administration and Planning, of the
Company since 1994. Prior to joining the Company in 1993, he served as Chief
Financial Officer of Grace-Sierra Horticultural Products Company from 1991 to
1993, and as Treasurer and Controller of that corporation from 1987 to 1991.
Mr. Stern has been Vice President, Human Resources, of the Company and
its predecessors since 1984.
Mr. Walley has been Vice President, General Counsel and Secretary of
the Company and its predecessors since 1985.
Mr. Webb has been a Vice President of the Company since 1988. He was
Vice President - Operations of Hyponex Corporation from 1980 until 1988.
It is currently anticipated that James Hagedorn will become Senior
Vice President of the Company and Manager of the Company's Consumer Garden
Group as soon as practicable after the Merger Transactions become effective.
It is not currently anticipated that any other employee of Miracle-Gro will
become an executive officer of the Company; however, it is anticipated that
Horace Hagedorn will be named Vice Chairman of the Board of Directors upon the
consummation of the Merger Transactions.
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
Company's cumulative total stockholder return (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the difference between the price of the
Company's Common Shares at the end and the beginning of the measurement period;
by (ii) the price of the Company's Common Shares at the beginning of the
measurement period) against the cumulative return of the Standard & Poor's 500
Composite Stock Index ("S&P 500 Comp") and of an index comprised of the common
stock of Duracell International, Inc., First Brands Corp., Lesco Inc., Newell
Co., Rubbermaid Inc. and Stanley Works (the "Peer Group") for the period from
January 31, 1992 to September 30, 1994. The Company's Common Shares became
34
48
registered under Section 12 of the Exchange Act on January 31, 1992. The
comparison assumes $100 was invested on January 31, 1992 in the Company's
Common Shares and in each of the foregoing indices and assumes reinvestment of
dividends.
[Performance Graph has been filed on Form SE]
REPORT OF THE COMPENSATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT/PROSPECTUS, IN WHOLE
OR IN PART, THIS REPORT AND THE GRAPH SET FORTH ABOVE UNDER "PERFORMANCE GRAPH"
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Compensation Committee of the Board of Directors of the Company
(the "Committee") is comprised of three outside directors, none of whom was
formerly an officer of the Company. During the 1994 fiscal year, none of the
Company's executive officers served on the board of any organization of which a
Committee member was an executive officer or on the compensation committee of
any organization of which any director of the Company was an executive officer.
The Committee has retained outside legal counsel and compensation consultants.
Role of the Compensation Committee
The Committee has the oversight responsibility for the Company's
executive compensation program. The Committee reviews the general compensation
philosophy of the Company and, in consideration thereof, determines the forms
and terms of compensation to be paid to executive officers of the Company.
Prior to the beginning of each fiscal year, the Committee reviews the
performance of the Chief Executive Officer and the Chief Operating Officer and
determines the amount of salary adjustment, if any, each should receive. At
the same time, the Committee establishes the goals to be met by the executive
officers of the Company during the fiscal year and targets the levels at which
bonuses will be paid under the Company's Executive Annual Incentive Plan (the
"Bonus Plan") . At the end of each fiscal year, the Committee determines the
extent to which goals have been met or exceeded by the executive officers of
the Company and awards bonuses accordingly. In addition, the Committee is
charged with administering the Company's 1992 Long Term Incentive Plan (the
"1992 LTIP") and makes awards of stock options and performance shares pursuant
thereto.
Compensation Philosophy
In designing the compensation program for the executive officers of
the Company, the Committee follows the belief that the amounts of compensation
received by the executive officers should reflect not only the value created
for shareholders during the fiscal year but also the extent to which the
Company's short-term and long-term strategic goals and objectives have been
advanced. The compensation program has been designed to achieve the following
objectives:
o Compensation should be meaningfully related to the value created for
shareholders. The Committee has linked executive performance to
corporate performance by measuring the Company's year-to-year gains
in net income, setting a target at the median net income gain of all
S & P 500 companies. Executives are then rewarded with awards under
the Bonus Plan based upon the Company's performance.
o The various elements of the compensation program should support the
short and long term strategic goals and objectives of the Company by
rewarding the Company's executive officers based upon the
achievement of these goals.
35
49
o The various elements of the compensation program should enable the
Company to recruit, maintain and motivate the executive talent
required to meet the Company's strategic goals.
o The various elements of the compensation program should reflect and
promote the Company's values and reward individuals for outstanding
contributions to the Company's success.
o Performance should be a key determinant of pay.
o Minimum stock ownership must be attained by all corporate officers
and directors.
Committee Activity
During the 1994 fiscal year, the Committee determined that the
Company would be better served by the retention of a new compensation
consulting firm. The Company identified and recommended a new consultant which
the Committee approved. Thereafter, the Committee directed that management of
the Company and the consultant review the existing executive compensation
program and propose modifications prior to the beginning of the 1995 fiscal
year. The consultant confirmed that for the 1995 fiscal year and beyond the
existing compensation program should:
o Target base salaries at the competitive 50th percentile of base
salaries for executive officers in similar positions at corporations
of similar sales volume and net income growth performance.
o Target payoffs under the Bonus Plan at the competitive 50th
percentile of short-term incentives for executive officers in
similar positions in companies comparable to the Company.
The comparative group of companies used to calculate base salaries and bonuses
was larger than the Peer Group identified in the Performance Graph.
The consultant recommended and the Committee approved the following
changes to the Company's executive compensation program:
o Targets for awards under the Bonus Plan have been established to
measure year-to-year gains in net income before accounting changes.
Targets have been set at the comparative performance levels of
companies in the S & P 500, as previously discussed under
"Compensation Philosophy" above.
o Grants of stock options under the 1992 LTIP are to be set at the
75th percentile of stock option grants made to executive officers in
similar positions in a group of comparative manufacturing and
consumer products companies identified by the consultant with
compensation data adjusted to reflect the Company's sales volume.
The comparative companies are a part of the large proprietary data
base which the consultant maintains. All such grants are to be in
the form of non-qualified stock options with exercise prices equal
to the closing "asked" price of the Company's Common Shares on the
date of grant.
o Beginning in fiscal 1995, discontinuation of the performance share
component of the Company's 1992 LTIP to focus value creation on
stock options and simplify long term incentives.
Salary Adjustments, Bonus Awards and Stock Grants
During the 1994 Fiscal Year
Salary Adjustments. Continuing the Company's philosophy of strengthening
the performance-related pay components, base salary merit increases for 1994
for executive officers as a group were an aggregate 3%. Based on
36
50
the recommendation of the Company's compensation consultant and the continuing
low rate of inflation, the Committee determined that a 3% merit increase target
was sufficient to maintain competitive positioning of base salaries of the
Company's executive officers at the 50th percentile of the comparative group of
companies previously discussed.
During the 1994 fiscal year, the Committee increased the base salary component
of the compensation of Mr. Seitz, Chairman and Chief Executive Officer of the
Company, by 4%. At the December 1993 Compensation Committee Meeting, the
Committee considered the attainment of 1993 fiscal year goals and the
completion of the acquisition of the Republic Tool and Manufacturing Company
when determining the performance of Mr. Seitz for that period. The Committee
also considered that Mr. Seitz' base salary was at the low end of the
competitive range.
Bonus Awards. (a) Bonuses granted pursuant to the Bonus Plan. The payments
made under the Bonus Plan were based on Earnings before Interest, Taxes and
Amortization ("EBITA") (60%) and Average Working Capital plus Average Capital
Expense ("AWC+ACE") (40%). EBITA was 92.2% of the target level, and AWC + ACE
was 78.6% of target level, leading to a composite corporate performance for the
purposes of the Bonus Plan of 86.7%. This measure was used in the calculation
of executive bonuses, including the bonus paid to Mr. Seitz.
(b) Adjustment Bonuses. The Committee recognized the contribution
of certain executive officers to the acquisition and successful, non-dilutive
integration of the operations of Grace-Sierra Horticultural Products Company
("Grace-Sierra") into those of the Company and the impact of the
discontinuance of the performance share component of the 1992 LTIP by making a
one time, additional bonus (the "Adjustment Bonus") to those executives
impacted by both. The Adjustment Bonus in total represented approximately 13%
of aggregate salaries of the executive officers who received an Adjustment
Bonus, and was allocated based on the loss of opportunity resulting from the
termination of the performance share component of the 1992 LTIP and such
executive officer's participation in the successful integration of
Grace-Sierra. The amount of the adjustment bonus paid to Mr. Seitz was
$56,345.
Stock Options and Performance Share Awards. Based on the recommendation of the
Company's previous compensation consultant, the Committee determined the
aggregate value of the awards to be made to each executive officer under the
1992 LTIP for the 1994 fiscal year. The value of such awards was then divided
equally between options and performance shares, and was based upon the closing
"asked" price of the Company's Common Shares on the date of grant. The number
of options granted to each executive officer was then determined based upon the
Black-Scholes valuation of the value of an option with a ten-year term. Stock
option grants and performance share awards made to Mr. Seitz are reflected in
the table on page __ of this Proxy Statement/Prospectus.
As previously indicated, after the grant of performance share awards for fiscal
1994, the Committee determined to discontinue the performance share component
of the 1992 LTIP. As a result of such discontinuance, the Committee approved
the vesting of previous grants of performance shares at the initial grant level
as they mature (i.e., without applying performance standards to the number of
shares granted). Awards which matured at the end of the 1994 fiscal year were
vested or paid to plan participants.
Submitted by the Compensation Committee of the Company.
Joseph P. Flannery, Chairman, Jack Chamberlin and Jack Sullivan
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EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended September 30,
1994, 1993 and 1992, compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Compensation ------
------------------- Securities All Other
Name and Fiscal Salary Bonus Underlying Compensation
Principal Office Year ($) ($) Options/SARs(#)(1) ($)(2)
---------------- ---- --- --- ------------------ ---------------
Tadd C. Seitz:
Chairman of the 1994 $362,500 $228,965 129,447 $3,270
Board and Chief 1993 $341,725 $189,780 85,019 $3,270
Executive Officer 1992 $323,925 $191,066 0 --
Theodore J. Host:
President and 1994 $307,833 $196,650 82,567 $3,270
Chief Operating 1993 $283,750 $162,963 53,108 $3,270
Officer 1992 $292,745 $250,000 136,364(3) --
Paul D. Yeager:
Executive Vice 1994 $202,250 $125,000 25,342 $3,270
President and Chief 1993 $192,750 $115,103 18,739 $3,270
Financial Officer 1992 $173,950 $ 91,827 0 --
J. Blaine McKinney:
Senior Vice 1994 $191,667 $105,000 31,658 $1,907
President, 1993 $177,333 $ 87,365 35,409 --
Consumer Business 1992 $ 58,333 $ 30,000 0 --
Group
Richard B. Stahl:
Senior Vice President 1994 $180,333 $ 89,000 14,932 $3,270
and General Manager, 1993 $163,600 $ 89,679 14,546 $3,270
Professional Business 1992 $155,000 $ 82,800 0 --
Group
- -------------------
(1) Except as noted, these numbers represent options for Common Shares
granted pursuant to the Company's 1992 Long Term Incentive Plan. See
the table under "OPTION GRANTS IN LAST FISCAL YEAR" for more detailed
information on such options.
(2) In accordance with the transition provisions of the revised rules
governing the disclosure of executive compensation adopted by the
Commission, amounts of "All Other Compensation" are excluded for the
Company's 1992 fiscal year. Includes contributions to the PSP.
(3) These options expire on January 8, 2002; provided, however, that if
Mr. Host's active employment with the Company and its subsidiaries is
terminated for cause, these options will be forfeited.
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Grants of Options
The following table sets forth information concerning individual
grants of options made during the 1994 Fiscal Year to each of the executive
officers named in the Summary Compensation Table. The Company has never
granted stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Number of % of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term(1)
Options Employees in Price Expiration ----------------------
Name Granted(#) Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- ---------- ------------- --------- ---------- ----- ------
Tadd C. Seitz 87,840(2)(3) 22.5% $17.25 9/30/03 $953,064 $2,414,722
41,607(3)(4) 10.6% $16.25 11/03/02 $372,840 $ 918,142
Theodore J. Host 56,580(2)(3) 14.5% $17.25 9/30/03 $613,893 $1,555,384
25,987(3)(4) 6.6% $16.25 11/03/02 $232,869 $ 573,455
Paul D. Yeager 16,180(2)(3) 4.1% $17.25 9/30/03 $175,553 $ 444,788
9,162(3)(4) 2.3% $16.25 11/03/02 $ 82,101 $ 202,178
J. Blaine McKinney 21,680(2)(3) 5.5% $17.25 9/30/03 $235,228 $ 595,983
9,978(3)(4) 2.5% $16.25 11/03/02 $ 89,413 $ 220,184
Richard B. Stahl 7,820(2)(3) 2.0% $17.25 9/30/03 $ 84,847 $ 214,972
7,112(3)(4) 1.8% $16.25 11/03/02 $ 63,731 $ 156,940
- --------------
(1) The amounts reflected in this table represent certain assumed rates of
appreciation only. Actual realized values, if any, on option
exercises will be dependent on the actual appreciation of the Common
Shares of the Company over the term of the options. There can be no
assurances that the Potential Realizable Values reflected in this
table will be achieved.
(2) These options were granted under the Company's 1992 Long Term
Incentive Plan and become exercisable in three approximately equal
installments on each of the first three anniversaries of the date of
grant, subject to the right of the Compensation Committee of the
Company's Board of Directors to accelerate the exercisability of such
options in its discretion.
(3) In the event of a "change in control" (as defined in the 1992 Long
Term Incentive Plan), each option will be canceled in exchange for a
payment in cash of an amount equal to the excess of the highest price
paid (or offered) for Common Shares during the preceding 30 trading
days over the exercise price for such option. Notwithstanding the
foregoing, if the Compensation Committee determines that the holder of
the option will receive a new award (or have his prior award honored)
in a manner which preserves its value and eliminates the risk that the
value of the award will be forfeited due to an involuntary
termination, no settlement will occur as a result of a change in
control. In the event of termination of employment by reason of
retirement, long term disability or death, the options may thereafter
be exercised in full for a period of 5 years, subject to the stated
term of the options. The options are forfeited if the holder's
employment is terminated for cause. In the event an option holder's
employment is terminated for any reason other than retirement, long
term disability, death or cause, any exercisable options held by him
at the date of termination may be exercised for a period of 30 days.
(4) These options (or a percent thereof) were originally to be earned
under the 1992 Long Term Incentive Plan based upon the Company's
performance during the 1994 Fiscal Year. However, on December 13,
1994, the Company's Board of Directors approved its Compensation
Committee's recommendation to grant 100% of the Common Shares subject
to these options as of September 30, 1994.
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Option Exercises and Holdings
The following table sets forth information with respect to unexercised
options held as of the end of the 1994 Fiscal Year by each of the executive
officers named in the Summary Compensation Table. No options were exercised
during the 1994 Fiscal Year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Number of Underlying Unexercised Value of Unexercised
Securities Options at In-the-Money
Underlying FY-End (#) Options at FY-End($)(1)
Options Value ---------- ---------------------------
Name Exercised Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- --------- ----------- ----------- ------------- ----------- -------------
Tadd C. Seitz 0 -- 98,873 157,200 $ 0 $ 0
Theodore J. Host 0 -- 198,126 99,900 $ 763,638 $ 0
Paul D. Yeager 0 -- 12,623 40,621 $ 0 $ 0
J. Blaine McKinney 0 -- 28,721 48,325 $ 0 $ 0
Richard B. Stahl 0 -- 16,912 19,679 $ 0 $ 0
- ---------------
(1) "Value of Unexercised In-the-Money Options at FY-End" is based upon
the fair market value of the Company's Common Shares on September 30,
1994 ($15.50) less the exercise price of in-the-money options at the
end of the 1994 Fiscal Year.
Pension Plans
The Company maintains a tax-qualified non-contributory defined benefit
pension plan (the "Pension Plan"). All employees of the Company and its
subsidiaries (except for Hyponex Corporation, a wholly-owned subsidiary of the
Company ("Hyponex"), and O. M. Scott & Sons, Ltd., a wholly owned subsidiary of
the Company in United Kingdom) are eligible to participate upon meeting certain
age and service requirements. The following table shows the estimated annual
benefits (assuming payment made in the form of a single life annuity) payable
upon retirement at normal retirement age (65 years of age) to an employee in
specified compensation and years of service classifications.
PENSION PLANS TABLE (1)
Annualized Years of Service
Average ---------------------------------------------------------------------------------
Final Pay 10 15 20 25 30
- ---------------------------------------------------------------------------------------------------------
$ 100,000 $13,279.50 $19,919.25 $26,559.00 $33,198.75 $39,838.50
250,000 35,779.50 53,669.25 71,559.00 89,448.75 107,338.50
500,000 73,279.50 109,919.25 146,559.00 183,198.75 219,838.50
750,000 110,579.50 166,169.25 221,559.00 276,948.75 332,338.50
1,000,000 148,279.50 222,419.25 296,559.00 370,698.75 444,838.50
1,250,000 185,779.50 278,669.25 371,559.00 464,448.75 557,338.50
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- --------------
(1) The Code places certain limitations on the annual pension benefits
which can be paid from the Pension Plan. Such limitations are not
reflected in the table. This table reflects the total aggregate
benefits payable annually upon retirement under both the Pension Plan
and The Scotts Company Excess Benefit Plan (the "Excess Benefit
Plan"), which is discussed below. The Pension Plan and the Excess
Benefit Plan require an offset of 1.25% of the Social Security primary
insurance amount ("PIA") for each year of service and such amount has
been deducted from the figures in the table. The PIA used in
developing the above figures is $13,764.00. Thus, the offset is
$5,161.50 for a person with 30 years of service. The maximum possible
offset is $6,882.00 for a person with 40 years of service.
Monthly benefits under the Pension Plan upon normal retirement (age
65) are based upon an employee's average final pay and years of service, and
are reduced by 1.25% of the employee's PIA times the number of years of such
employee's service. Average final pay is the average of the 60 highest
consecutive months' compensation during the 120 months prior to retirement.
Pay includes all earnings and a portion of sales incentive payments, management
incentive payments and executive incentive payments, but does not include
earnings in connection with foreign service, the value of a company car,
separation or other special allowances and commissions. Additional provisions
for early retirement are included.
At September 30, 1994, the credited years of service (including
certain prior service with ITT Corporation, from whom the Company was acquired
in 1986) and the 1994 annual covered compensation for purposes of the Pension
Plan and the Excess Benefit Plan of the five executive officers of the Company
named in the Summary Compensation Table were as follows:
Covered
Years of Service Compensation
-----------------------------------------
Mr. Seitz 18 years 9 months $587,965
Mr. Host 2 years 10 months $501,650
Mr. Stahl 18 years 9 months $264,733
Mr. Yeager 25 years 1 month $324,000
Mr. McKinney 2 years 4 months $291,667
Effective October 1, 1993, the Company also established the Excess
Benefit Plan which provides additional benefits to participants in the Pension
Plan whose benefits are reduced by limitations imposed under Sections 415 and
401(a)(17) of the Code. Under the Excess Benefit Plan, executive officers and
certain key employees will receive, at the same time and in the same form as
benefits paid under the Pension Plan, additional monthly benefits in an amount
which, when added to the benefits paid to the participant under the Pension
Plan, will equal the benefit amount such participant would have earned but for
the limitations imposed by the Code to the extent such limitations apply.
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Company Employment Agreements
The Company entered into an Employment Agreement with Mr. Host
effective October 1991 providing for his continued employment as President and
Chief Operating Officer of the Company until December 1996 at an annual base
salary of at least $270,000 per year, plus incentive bonus under The Scotts
Company Executive Incentive Plan. If Mr. Host's employment is terminated for
specified reasons, the Employment Agreement provides that he will receive,
subject to certain limitations, his full base salary which would have been paid
until the first anniversary of his date of termination.
In connection with the entering into of his Employment Agreement, Mr.
Host received a signing bonus of $250,000, and in January 1992, pursuant to
such Agreement, purchased 45,454 Common Shares at a purchase price of $9.90 per
share, and pursuant to a Stock Option Plan and Agreement dated as of January 9,
1992, was granted options, which vested one-third on the date of grant and
one-third on each of the first and second anniversaries of his date of
employment, to purchase 136,364 Common Shares at a purchase price of $9.90 per
share. These options expire on January 8, 2002; provided, however, that if Mr.
Host's active employment with the Company and its subsidiaries is terminated
for cause, these options will be forfeited.
Miracle-Gro Employment Agreements
In connection with and as a condition to the Merger Transactions, the
Company or New Miracle-Gro intends to enter into employment agreements with the
following employees of Miracle-Gro: Horace Hagedorn, John Kenlon and James
Hagedorn. Under such employment agreements, Horace Hagedorn will serve as Chief
Executive Officer of New Miracle-Gro, John Kenlon will serve as President of
New Miracle-Gro and James Hagedorn will serve as Senior Vice President of the
Company, each for a term of at least three years.
CERTAIN MATTERS PERTAINING TO THE BOARD OF DIRECTORS
Committees and Meetings of the Board
The Company's Board of Directors held nine regularly scheduled or
special meetings (including telephonic meetings) during the 1994 Fiscal Year.
The Company's Board of Directors has four standing committees: an Executive
Committee, an Audit Committee, a Nominating Committee and a Compensation
Committee.
Each current member of the Board of Directors of the Company nominated
for election attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors of the Company and the total number of
meetings held by the committees of such Board on which he or she served during
the period he or she served.
Executive Committee. The Executive Committee has the authority, with
certain exceptions, to take all actions that may be taken by its full Board of
Directors. It may meet between regularly scheduled meetings to take such
action as is necessary for the operation of the Company. The Executive
Committee did not meet during the 1994 Fiscal Year.
Audit Committee. The Audit Committee reviews and approves the scope
and results of any outside audit of the Company, and the fees therefor, and
makes recommendations to the Board of Directors or management concerning
auditing and accounting matters and the selection of outside auditors. The
Audit Committee met three times during the 1994 Fiscal Year.
Nominating Committee. The Nominating Committee, which was established
in December, 1994, recommends policies on the composition of the Board and
nominees for membership on the Board. It did not meet during the 1994 Fiscal
Year.
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Compensation Committee. The Compensation Committee reviews, considers
and acts upon matters of salary and other compensation and benefits of all
officers and other employees of the Company and acts upon all matters
concerning, and exercises such authority as is delegated to it under the
provisions of, any benefit, retirement or pension plan. The Compensation
Committee met five times during the 1994 Fiscal Year.
Compensation of Directors
Each director of the Company, other than any director employed by the
Company, receives a $25,000 annual retainer for Board and committee meetings
plus all reasonable travel and other expenses of attending such meetings.
Directors, other than those employed by the Company (the "Nonemployee
Directors"), receive an annual grant on the first business day following the
date of each annual meeting of shareholders (commencing with the 1994 Annual
Meeting) of options to purchase 4,000 Common Shares at an exercise price equal
to the fair market value of the underlying Common Shares on the date of the
grant. In addition, on November 11, 1992, each of the Nonemployee Directors of
the Company on that date (Messrs. Beard, Chamberlin, Flannery and Sherman and
Henry O. Timnick (who is no longer a director of the Company)) was granted
options to purchase 4,000 Common Shares at an exercise price of $16.25.
Options granted to Nonemployee Directors become exercisable six months after
the date of grant and remain exercisable until the earlier to occur of (i) the
tenth anniversary of the date of grant or (ii) the first anniversary of the
date the Nonemployee Director ceases to be a member of the Company's Board of
Directors.
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 35,000,000
Common Shares, each without par value. At January 15, 1995, 1,364,589 Common
Shares, were reserved for issuance upon the exercise of outstanding employee
stock options. If the Merger Transactions are consummated, an additional
3,000,000 Common Shares will be reserved for issuance upon exercise of the
Warrants and 10,263,158 Common Shares will be reserved for issuance upon
conversion of the Class A Convertible Preferred Stock. See "THE AGREEMENT -
Terms of the Merger Transactions."
If the proposed amendment to Article FOURTH of the Amended Articles is
adopted, the authorized capital stock of the Company will consist of 50,000,000
Common Shares each without par value, and 195,000 voting preferred shares
designated Class A Convertible Preferred Stock. The following description of
capital stock of the Company assumes this amendment is adopted. See "PROPOSED
AMENDMENT TO ARTICLE FOURTH OF THE AMENDED ARTICLES OF INCORPORATION."
Holders of Common Shares are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Holders of Class
A Preferred Stock are entitled to the number of votes equal to the number of
Common Shares into which the Class A Preferred Stock is convertible
(approximately 52.6 votes per share initially), as described below. The Common
Shares and the Class A Convertible Preferred Stock will vote together as a
single class. Shareholders have no cumulative voting rights, which means that
the holders of shares entitled to exercise more than fifty percent (50%) of the
voting power are able to elect all of the directors (or all of the directors in
each class of directors if the proposed amendment to Subparagraphs (A) and (B)
of Section 2.02 of the Code of Regulations is adopted). The Company has agreed
that, until the fifth anniversary of the Effective Time of the Merger
Transactions, it will take such action as may be required to cause three
directors designated by the Miracle-Gro Shareholder Representative to be
elected to the Board of Directors of the Company (one director to each class of
directors if the proposed amendment to Subparagraphs (A) and (B) of Section
2.02 of the Code of Regulations is adopted). See "THE AGREEMENT - Standstill
Provisions - Board of Directors" and "PROPOSED AMENDMENTS TO SECTION 2.02 OF
THE CODE OF REGULATIONS - Effect of Adoption of Amendments."
Under Ohio law and the Company's Amended Articles of Incorporation,
the affirmative vote of the holders of shares entitled to exercise at least
two-thirds (2/3) of the voting power is necessary for certain corporate
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actions, including merger or consolidation with another corporation,
combination or majority share acquisition, sale or other disposition of all or
substantially all of the corporation's property and assets, voluntary
dissolution of the Company or amendment of the Amended Articles of
Incorporation. If the proposal to adopt new Article NINTH to the Amended
Articles of Incorporation is adopted, the vote required to amend the Amended
Articles of Incorporation -- other than amendments to change the vote required
to authorize the listed transactions -- will be reduced to a majority. If the
proposal to adopt new Article NINTH is not adopted, the affirmative vote of the
holders of shares entitled to exercise at least two-thirds (2/3) of the voting
power will be necessary to adopt any amendment to the Amended Articles of
Incorporation. See "PROPOSED AMENDMENT TO ADOPT NEW ARTICLE NINTH OF THE
AMENDED ARTICLES OF INCORPORATION."
See "PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE AMENDED ARTICLES OF
INCORPORATION," "PROPOSED AMENDMENTS TO SECTION 2.02 OF THE CODE OF
REGULATIONS," "PROPOSED AMENDMENT TO SECTION 6.01 OF THE CODE OF REGULATIONS"
and "PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS" for a description of
provisions in the Company's Amended Articles of Incorporation and Code of
Regulations and in Ohio law which might have the effect of delaying or
preventing a change of control of the Company.
COMMON SHARES
Holders of Common Shares are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to the rights of holders of the Class A Cumulative Preferred Stock, as
described below, and to any contractual restrictions on the payment of
dividends. Upon consummation of the Merger Transactions, in the event the
Company receives additional free cash flow, as expected, the Company plans to
consider some or all of the following: investment in the Company's business,
including research and development, paying down debt, a Common Share buyback
and a Common Share dividend.
Upon dissolution, liquidation or sale of all or substantially all the
assets of the Company, after payment in full of all amounts required to be paid
to creditors and to the holders of the Class A Convertible Preferred Stock, as
described below, the holders of Common Shares will be entitled to receive pro
rata the remaining assets of the Company available for distribution.
The holders of Common Shares do not have preemptive, subscription,
redemption or conversion rights.
CLASS A CONVERTIBLE PREFERRED STOCK
The 195,000 shares of Class A Convertible Preferred Stock are to be
issued to the Miracle-Gro Shareholders in connection with the Merger
Transactions. See "THE AGREEMENT - Terms of the Agreement."
Dividends shall be payable on the Class A Convertible Preferred Stock
at the rate of $50.00 per share per year. Dividends shall be cumulative and
shall be payable quarterly. No dividends or other distributions (other than
stock dividends) and no redemption, repurchase or other acquisition for value
(other than from employees pursuant to obligations existing, or upon
foreclosure of loans existing, prior to the Effective Time) shall be made with
respect to the Common Shares until cumulative dividends on the Class A
Convertible Preferred Stock, and all amounts payable on redemption of the Class
A Convertible Preferred Stock, have been paid in full or set apart for payment.
In the event that the Company fails to pay all or any portion of the accrued
but unpaid dividends for two consecutive quarters, Miracle-Gro Shareholders
shall be entitled to elect three additional directors until such time as the
accrued but unpaid dividends are paid to the holders of the Class A Convertible
Preferred Stock, at which time such new directors shall be removed and the
Board of Directors shall be reduced to the number in effect immediately prior
to the increase.
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In the event of liquidation, dissolution or winding up of the Company,
the holders of the Class A Convertible Preferred Stock shall be entitled to
receive $1,000 per share, plus accumulated unpaid dividends, before any amount
will be paid to the holders of the Common Shares.
Each share of the Class A Convertible Preferred Stock shall be
convertible at any time into the number of Common Shares determined by dividing
$1,000 by the Conversion Price, initially $19 per Common Share subject to
adjustment in the event of stock dividends, stock splits, share combinations,
asset distributions, recapitalizations and similarly dilutive events.
The Class A Convertible Preferred Stock will be subject to redemption
at any time after five years from the date of issuance, for $1,000 per share
plus accrued unpaid dividends.
The holders of Class A Convertible Preferred Stock do not have
preemptive or subscription rights, except as set forth in the Agreement. See
"THE AGREEMENT - Standstill Provisions."
THE WARRANTS
In connection with the Merger Transactions, and pursuant to the
Agreement, the Company will issue three separate series of Warrants, designated
Series A, B and C, which will be indistinguishable from each other except with
respect to the exercise price. Each series of Warrants will be exercisable for
1,000,000 Common Shares, which collectively represents approximately 8% of the
Company's Common Shares on a fully diluted basis. The number of Common Shares
for which the Warrants will be exercisable will be adjusted in the event of
stock dividends, stock splits, share combinations, asset distributions,
recapitalizations and similarly dilutive events.
Each Warrant will be exercisable for eight and one-half years
from the Effective Time. Each Warrant will provide that to the extent that
exercise of such Warrant would increase the Total Voting Power of the
Miracle-Gro Shareholders to more than 43% during the Standstill Period
(excluding the unexercised Warrants) or to more than 49% after the Standstill
Period (including the unexercised Warrants), such Warrant will not be
exercisable for Common Shares but rather will be exercisable only for the
spread between the exercise price thereof and the fair market value of the
Company's Common Shares at the time of exercise. The Warrants will provide
that the exercise price thereof may be paid in Common Shares or by reducing the
number of Common Shares for which such Warrants would otherwise be exercisable.
The Miracle-Gro Shareholders may not exercise any voting rights with respect
to the Common Shares underlying the Warrants until, and to the extent, they are
exercised for Common Shares.
The exercise prices for the Series A, Series B and Series C Warrants
are $21 per Common Share, $25 per Common Share and $29 per Common Share,
respectively.
DESCRIPTION OF CAPITAL STOCK OF THE MIRACLE-GRO COMPANIES
The authorized capital stock of Miracle-Gro consists of 20,000 shares
of voting common stock, without par value, and 20,000 shares of non-voting
common stock, without par value. As of the date hereof there are outstanding
13,405 shares of Miracle-Gro's voting common stock and 13,405.284 shares of
Miracle-Gro's non-voting common stock. Such voting and non-voting stock is
held by eight people.
The authorized capital stock of Miracle-Gro Delaware consists of 1,500
shares of voting common stock, without par value, and 1,500 shares of
non-voting common stock, without par value. As of the date hereof there are
outstanding 1,000 shares of Miracle-Gro Delaware's voting common stock and
999.8 shares of Miracle-Gro Lawn Product's non-voting common stock. Such
voting and non-voting stock is held by eight people.
The authorized capital stock of Miracle-Gro UK consists of 20,000
shares of voting common stock, without par value, and 20,000 shares of
non-voting common stock, without par value. As of the date hereof there
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are outstanding 4,997.274 shares of Miracle-Gro UK's voting common stock and
4,997.106 shares of Miracle-Gro UK's non-voting common stock. Such voting and
non-voting stock is held by eight people.
The authorized capital stock of Nurseries consists of 500 shares,
without par value. As of the date hereof there is outstanding one share of
Nurseries stock held by one person.
For all of the Miracle-Gro Companies, each outstanding share of voting
common stock entitles the holder to one vote on all matters submitted to a vote
of shareholders. Holders of shares of common stock (whether voting or
non-voting) of each of the Miracle-Gro Companies have equal dividend and
liquidation rights, and no holder has any preemptive rights to subscribe for
any securities of his or her respective company.
COMPARISON OF SHAREHOLDER RIGHTS
The Miracle-Gro Companies are closely held corporations, each with
eight or fewer individual shareholders, all but one of whom are members of the
Hagedorn family. The rights of the shareholders of the Miracle-Gro Companies
are governed primarily by agreements among those shareholders. Following the
Merger Transactions, the Miracle-Gro Shareholders will hold shares in the
Company, an Ohio corporation, and their rights will be governed by Ohio law and
the Company's Amended Articles of Incorporation and Code of Regulations. Set
forth below is a summary of some of the significant features of Ohio law and
the Amended Articles of Incorporation and Regulations of the Company. The
Company is proposing amendments to its Amended Articles of Incorporation and
Code of Regulations. See "PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE AMENDED
ARTICLES OF INCORPORATION," "PROPOSED AMENDMENT TO ADOPT NEW ARTICLE NINTH OF
THE AMENDED ARTICLES OF INCORPORATION," "PROPOSED AMENDMENTS TO SECTION 2.02 OF
THE CODE OF REGULATIONS," and "PROPOSED AMENDMENT TO SECTION 6.01 OF THE CODE
OF REGULATIONS." The following discussion assumes these amendments are adopted.
MERGERS AND CONSOLIDATIONS
Under the GCL and the Company's Amended Articles of Incorporation, an
agreement of merger or consolidation must be approved by the directors of each
constituent corporation and adopted by shareholders of each constituent Ohio
corporation (other than the surviving corporation in the case of a merger)
holding at least 2/3 of the corporation's voting power. In the case of a
merger, the agreement must also be adopted by the shareholders of the surviving
corporation by similar vote, if one or more of the following conditions exist:
(a) the articles or regulations of the surviving corporation then in effect
require that the agreement be adopted by the shareholders or by the holders of
a particular class of shares of that corporation; (b) the agreement conflicts
with the articles or regulations of the surviving corporation then in effect,
or changes the articles or regulations, or authorizes any action that, if it
were being made or authorized apart from the merger, would otherwise require
adoption by the shareholders or by the holders of a particular class of shares
of that corporation; (c) the merger involves the issuance or transfer by the
surviving corporation to the shareholders of the other constituent corporation
or corporations of such number of shares of the surviving corporation as will
entitle the holders of the shares immediately after the consummation of the
merger to exercise 1/6 or more of the voting power of that corporation in the
election of directors; or (d) the agreement of merger makes such change in the
directors of the surviving corporation as would otherwise require action by the
shareholders or by the holders of a particular class of shares of that
corporation.
OTHER CORPORATE TRANSACTIONS
Subject to certain exceptions, under the GCL and the Company's Amended
Articles of Incorporation, the approval of 2/3 of the voting power of the
Company is required for (i) the consummation of combinations and majority share
acquisitions involving the transfer or issuance of such number of shares as
would entitle the holders thereof to exercise at least 1/6 of the voting power
of such corporation in the election of directors immediately after the
consummation of such transaction, (ii) the disposition of all or substantially
all of the corporation's assets other than in the regular course of business
and (iii) voluntary dissolutions.
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PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS
See "PROTECTION AGAINST NON-NEGOTIATED TAKEOVERS."
SPECIAL MEETINGS
Under the GCL, persons who may call a special meeting of shareholders
include the chairman of the board, the president, or, in case of the
president's absence, death, or disability, the vice-president authorized to
exercise the authority of the president in the absence of the latter; the
directors by action at a meeting or a majority of the directors acting without
a meeting; persons holding 25% or more of the voting power of all shares
entitled to vote, unless the articles or regulations specify a smaller or
larger portion, but not more than 50%; or such other officers or persons as the
articles or regulations may authorize. The Regulations authorize the Chairman
of the Board, the President (or, in the event of his absence, death or
disability, the Vice President authorized to exercise the authority of the
President in the absence of the latter), the Secretary or the Board of
Directors to call a special meeting of shareholders. In addition, the
Regulations authorize a special meeting of shareholders to be called by persons
holding at least a majority of all shares outstanding and entitled to vote
thereat.
CLASS VOTING
Under the GCL, holders of a particular class of shares are entitled to
vote as a separate class if the rights of such class are affected by mergers,
consolidations or amendments to the articles.
REMOVAL OF DIRECTORS AND FILLING OF VACANCIES
Under the Regulations, a director or directors may be removed from
office, with or without cause, by the affirmative vote of the holders of at
least a majority of the voting power of the Company which entitles them to
elect directors in place of those to be removed. Vacancies in the Board of
Directors of the Company and any newly-created directorships resulting from any
increase in the number of the directors may be filled by the directors, acting
by the vote of a majority of the directors then in office, even if less than a
quorum. A director elected to the Board to fill a vacancy would hold office
for the unexpired portion of the term of the director whose place has been
filled. A director elected by the Board to fill a newly created directorship
resulting from an increase in the number of directors would hold office until
the next election of the class for which the director was elected.
AMENDMENT TO THE ARTICLES
Under the GCL, an amendment to the articles must be adopted by the
affirmative vote of the holders of shares entitling them to exercise 2/3 of the
voting power of the corporation on the proposal, or a different proportion but
not less than a majority of the voting power, as provided in the articles. New
Article NINTH of the Amended Articles of Incorporation reduces the vote
required to amend any provision of the Amended Articles of Incorporation except
Article NINTH to a majority. See "PROPOSED AMENDMENT TO ADOPT NEW ARTICLE
NINTH OF THE AMENDED ARTICLES OF INCORPORATION."
APPRAISAL RIGHTS
Under the GCL, dissenting shareholders are entitled to appraisal
rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with amendments to its articles which change the rights of
shareholders in a substantially prejudicial manner. In addition, shareholders
of an Ohio corporation being merged into a new corporation are also entitled to
appraisal rights. Shareholders of an acquiring corporation are entitled to
appraisal rights in a merger, combination or majority share acquisition in
which such shareholders are entitled to voting rights.
DIVIDENDS
An Ohio corporation may pay dividends out of surplus, however created,
in cash, property or shares. An Ohio corporation must notify its shareholders
if a dividend is paid out of capital surplus.
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REPURCHASES
Under the GCL, a corporation may repurchase its own shares if
authorized to do so by its articles or under certain other circumstances but
may not do so if immediately thereafter its assets would be less than its
liabilities plus its stated capital, if any, or if the corporation is insolvent
or would be rendered insolvent by such a purchase or redemption. Article FIFTH
of the Amended Articles of Incorporation permits the Company to repurchase
shares to the extent permitted by law.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Under Section 1701.13(E) of the Ohio Revised Code, directors,
officers, employees and agents of Ohio corporations have an absolute right to
indemnification for expenses (including attorneys' fees) actually and
reasonably incurred by them to the extent they are successful in defense of any
action, suit or proceeding, including derivative actions, brought against them,
or in defense of any claim, issue or matter asserted in any such proceeding.
A director or officer is entitled to such indemnification if his success is "on
the merits or otherwise," thus mandating indemnification if the indemnitee is
successful on the merits or if he is successful, for example, in asserting a
procedural defense, such as a claim that the action is barred by the applicable
statute of limitations or if he is released pursuant to a negotiated settlement
without making payment or providing other consideration. Directors (but not
officers, employees or agents) are entitled to mandatory payment of expenses by
the corporation as they are incurred, in advance of the final disposition of
the action, suit or proceeding, provided the director agrees to cooperate with
the corporation concerning the matter and to repay the amount advanced if it is
proved by clear and convincing evidence that his act or failure to act was done
with deliberate intent to cause injury to the corporation or with reckless
disregard for the corporation's best interests.
The GCL permits a corporation to indemnify directors, officers,
employees or agents of the corporation in circumstances where indemnification
is not mandated by the statute if certain statutory standards are satisfied. A
corporation may grant indemnification in actions other than actions brought by,
or derivatively in the right of, the corporation if the indemnitee has acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Such indemnification is permitted against expenses (including attorneys' fees)
as well as judgments, fines and amounts paid in settlement actually and
reasonably incurred by the indemnitee.
An Ohio corporation may also provide indemnification in actions
brought by, or derivatively in the right of, the corporation for attorneys'
fees and expenses actually and reasonably incurred in connection with the
defense or settlement of an action if the officer, director, employee or agent
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation. Ohio law does not expressly
authorize indemnification against judgments, fines and amounts paid in
settlement in such actions. The corporation may not indemnify a director,
officer, employee or agent in such actions for attorneys' fees and expenses if
the director, officer, employee or agent is adjudged to be liable to the
corporation for negligence or misconduct in the performance of his duties to
the corporation, unless and only to the extent that a court determines that,
despite the adjudication of liability, such person is fairly and reasonably
entitled to indemnity.
The GCL grants express power to an Ohio corporation to purchase and
maintain insurance or furnish similar protection, including but not limited to
trust funds, letters of credit and self-insurance, for director, officer,
employee or agent liability. Such insurance may be purchased for, or other
protection provided to, any director, officer, employee or agent, regardless of
whether that individual is otherwise eligible for indemnification by the
corporation.
The Regulations provide for indemnification consistent with Section
1701.13(E) of the Ohio Revised Code. The Regulations provide that the Company
must indemnify officers and directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement incurred in connection
with any pending, threatened or completed action (whether criminal, civil,
administrative or investigative) by reason of the fact that such individual is
or was a director, officer, employee or agent of Scotts or is or was serving at
the request of Scotts Ohio as a director, trustee, officer, employee, member,
manager or agent of another corporation or other entity so long as such
individual acted in good faith and in a manner he reasonably believed was in,
or not opposed to, the best interests of Scotts and, with respect to any
criminal matter, he had no reasonable cause to believe his conduct was
unlawful. The Regulations forbid Scotts Ohio from indemnifying an officer or
director if such person is adjudged to be liable for acting with reckless
disregard for the best interests of Scotts or misconduct (other than
negligence) in the performance of his duty to Scotts unless and only to the
extent a court, in view of all the circumstances, concludes that such person is
fairly and reasonably entitled to such indemnity as the court deems proper.
The Regulations create a presumption that a director or officer has acted in
good faith
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and in a manner he reasonably believed to be in, or not opposed to, the best
interests of Scotts, and with respect to any criminal matter to have had no
reasonable cause to believe his conduct was unlawful. Because of this
presumption, Scotts believes that a director or officer will not have the
initial burden of showing that he acted in good faith or in a manner he
reasonably believed to be in, or not opposed to, the best interests of Scotts.
In addition, the Regulations require Scotts to advance expenses on behalf of
officers and directors if they agree in writing to repay such amounts if they
are not successful in the litigation.
The Regulations state that the indemnification provided thereby is not
exclusive of any other rights to which any person seeking indemnification may
be entitled. Additionally, the Regulations provide that Scotts may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of Scotts, or who is or was serving another entity
at the request of Scotts, against any liability asserted against him and
incurred by him in such capacity, or arising out of his status as such, whether
or not Scotts would have the obligation or power to indemnify him under the
Regulations. The Regulations also authorize Scotts to purchase and maintain
trust funds, letters of credit or self-insurance on behalf of any person who is
or was a director, officer, employee or agent of Scotts or who is serving or
has served another entity at the request of Scotts.
Ohio has codified the directors' common law duty of care and, in part,
their common law duty of loyalty. Section 1701.59(B) of the Ohio Revised Code
provides in pertinent part: "A director shall perform his duties as a director,
including his duties as a member of any committee of the directors upon which
he may serve, in good faith, in a manner he reasonably believes to be in or not
opposed to the best interests of the corporation, and with the care that an
ordinarily prudent person in a like position would use under similar
circumstances."
Under Ohio law, a director is not liable for monetary damages unless
it is proved by clear and convincing evidence that his action or failure to act
was undertaken with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation. This higher
standard of proof must be met in any action brought against a director for
breach of his duties, including any action involving or affecting (i) a change
or potential change in control of the corporation, (ii) a termination or
potential termination of a director's service to the corporation as a director
or (iii) a director's service in any other position or relationship with the
corporation. The higher standard of proof, however, does not affect the
liability of directors for unlawful loans, dividends or distributions under
Section 1701.95 of the Ohio Revised Code. There is no comparable provision
limiting the liability of officers, employees or agents of Ohio corporations.
Ohio law provides specific statutory authority for directors, when
determining what they reasonably believe to be in the best interests of the
corporation, to consider, in addition to the interests of the corporation's
shareholders, other factors such as the interests of the corporation's
employees, suppliers, creditors and customers; the economy of the state and
nation; community and societal considerations; the long-term and the short-term
interests of the corporation and its shareholders; and the possibility that
these interests may be best served by the continued independence of the
corporation.
INFORMATION ABOUT THE MIRACLE-GRO COMPANIES
BUSINESS OF THE MIRACLE-GRO COMPANIES
The Miracle-Gro Companies market and distribute throughout the United
States and Canada the leading line of water-soluble plant foods. These
products are designed to be dissolved in water, creating a dilute nutrient
solution which is poured over plants and rapidly absorbed by their roots
and leaves.
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The Miracle-Gro(R) branded line of products was established in 1951 by
nurseryman Otto Stern and advertising executive Horace Hagedorn through a
combination of the production activities of Stern's Nurseries, Inc. with the
marketing and sales activities of Hagedorn Sales Company, Inc. The products
were initially marketed through mail order catalogues and later through retail
outlets. In 1985 Mr. Hagedorn acquired Stern's Nurseries, Inc. from Mr. Stern
and formed Stern's Miracle-Gro Products, Inc.
Stern's Miracle-Gro(R) All-Purpose Water-Soluble Plant Food is the
Miracle-Gro Companies' leading product, accounting for approximately 60% of
sales in their last fiscal year. Other water-soluble plant foods in the product
line include Miracid(R) for acid loving plants, Miracle-Gro for Roses,
Miracle-Gro for Tomatoes and Miracle-Gro Lawn Food. The Miracle-Gro Companies
also sell a line of hose-end applicators for their water-soluble plant foods,
the Miracle-Gro No-Clog(R) Garden and Lawn Feeder line, which allow consumers
to apply water-soluble fertilizers to large areas quickly and easily with no
mixing or measuring required. The Miracle-Gro Companies also market a line of
products for houseplant use including Liquid Miracle-Gro, African Violet Food,
Plant Food Spikes and Leaf Shine. In addition, in 1994, the Miracle-Gro
Companies began a test market of a granular lawn product, and plan to expand
the test market in 1995.
All of the products sold by the Miracle-Gro Companies (other than
those produced by Miracle-Gro UK) are produced under contract by independent
fertilizer blending and packaging companies.
International
Miracle-Gro UK was formed in 1990 as the marketing arm for expansion
into the United Kingdom ("U.K."). The Company operated in a venture with the
Garden and Professional Products Division of Imperial Chemical Industries, Plc.,
which subsequently spun-off that business, along with others, into a new company
called Zeneca Garden Care ("Zeneca"). The venture agreement provided for Zeneca
to contract the packaging and distribution of Miracle-Gro products in the U.K.
in return for a share of the operating profits. On December 31, 1994, the Garden
and Professional Products Division of Zeneca was sold to Miracle Garden Care, a
wholly-owned subsidiary of Miracle Holdings. Miracle Holdings is a newly formed
company established by Miracle-Gro UK and certain institutional investors for
the purpose of pursuing the lawn and garden care business in the U.K. and
elsewhere. Miracle-Gro UK received a 32.5% equity interest in Miracle Holdings
in return for its transfer to Miracle Holdings of Miracle-Gro's European
business and the grant to Miracle Garden Care, pursuant to the license agreement
described below, of rights to certain trademarks. In addition, Miracle-Gro UK
has certain rights to buy out substantially all of the equity stakes of the
other investors in Miracle Holdings at certain future times. The option to buy
out the other investors in Miracle Holdings will extend to the Company after the
Merger Transactions.
The territory covered by the licensing agreement between Miracle-Gro
UK and Miracle Garden Care covers all of Europe, including the U.K. and
Ireland. Exclusive rights to certain Miracle-Gro trademarks for this territory
were licensed to Miracle Garden Care under this agreement for a period of time
ranging from five to twenty years. The actual length of the license period
will be determined based upon the joint venture's achievement of certain
operating profit goals and upon whether Miracle Garden Care elects to make a
public offering of its stock. Following completion of the Merger
Transactions, the territory in which Miracle Garden Care has the right to sell
Miracle-Gro branded products will be limited to the U.K. and Ireland, and
Miracle Garden Care will have the right to manufacture all such products sold
in the rest of Europe.
Only five years after introduction, Miracle-Gro UK's water soluble
plant foods are the leading such products in the U.K. In addition, Miracle
Garden Care sells a line of lawn care products and other products which had
been part of the Zeneca product line.
Marketing and Promotion
Miracle-Gro products are sold through a direct sales force to certain
large retailers and also via lawn and garden wholesale distributors. The
percentage of sales to mass merchandisers, warehouse-type clubs and large
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buying groups has increased in recent years. The top ten accounts (which
includes three wholesale distributors who resell to a variety of accounts)
represented 67% of the Miracle-Gro Companies' business in 1994.
The Miracle-Gro(R) line of water-soluble plant foods can be found in
most retail outlets which sell garden fertilizer products. Major retailers
which carry Miracle-Gro(R) branded items include Wal-Mart, Home Depot, K-Mart,
Target and Lowe's Stores. Warehouse-type clubs such as Sam's Club and Price
Costco also feature the products, as do nursery chains such as Frank's Nursery
and Crafts. Hardware cooperatives, such as Cotter and Co., Ace Hardware Corp.
and Servistar Hardware Stores, carry portions of the Miracle-Gro line. The
houseplant items are also carried in stores with traditionally small garden
sections, such as supermarkets and drugstores.
The Miracle-Gro Companies have adopted a "pull-through" marketing
strategy, generating demand for the products at the consumer level to create
sales from the retail shelves. This is accomplished by an intensive national
advertising program in the spring and early summer months, with the focus on
television commercials, mostly during prime-time. This advertising campaign is
supported by drive-time radio advertising on a national and local basis, as
well as print advertising in dozens of regional and national magazines.
Competition
The Miracle-Gro Companies sell their products, which are generally
non-proprietary, in a very competitive marketplace. They compete primarily
against regional brands, and private label products on both a regional and
national basis. The competitors are generally larger and have greater
financial and product development resources than the Miracle-Gro Companies and
often sell their products at lower prices than the Miracle-Gro Companies. The
Miracle-Gro Companies maintain their strong market position by virtue of an
extensive advertising campaign, and by the quality of their products. However,
there can be no assurance that expanded marketing efforts by existing
competitors, or new entrants, will not erode the business or profit margins of
the Miracle-Gro Companies.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK OF THE MIRACLE-GRO COMPANIES
Each of the Miracle-Gro Companies is a privately held company for
which there is no established public trading market.
For information regarding distributions to the shareholders of the
Miracle-Gro Companies, see "INFORMATION ABOUT THE MIRACLE-GRO COMPANIES -
Selected Financial Data," below, and the Stern's Miracle-Gro Products, Inc. and
Affiliated Companies Combined Financial Information appearing elsewhere in this
Proxy Statement/Prospectus.
SELECTED FINANCIAL DATA
THE MIRACLE-GRO COMPANIES
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table sets forth selected historical combined financial
data of the Miracle-Gro Companies and has been derived from the Miracle-Gro
Companies' Combined Financial Statements and Notes thereto as of September 30,
1993 and 1994 and for the three years ended September 30, 1994 included
elsewhere herein. The selected historical financial data as of December 31,
1993 and 1994, respectively are derived from unaudited combined financial
statements included herein. Such unaudited combined financial statements have
been prepared on the same basis as the Miracle-Gro Companies' Combined
Financial Statements, and Miracle-Gro's management believes that such
unaudited combined financial statements contain all adjustments necessary for
a fair presentation of the financial information presented (consisting only of
normal recurring adjustments). Interim results are not necessarily indicative
of results for the full year. The selected historical combined financial data
should be read in conjunction with the Miracle-Gro Companies' Combined
Financial Statements and Notes thereto and "THE MIRACLE-GRO COMPANIES -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elswhere herein.
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------------- ---------------------------
1990 1991 1992 1993(2) 1994 1993 1994
----------- ----------- ----------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXEMPT RATIOS) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales..................... $62,654,541 $72,493,930 $93,146,626 $92,779,345 $107,421,014 $14,078,419 $15,254,564
Cost of sales................. 32,842,981 37,013,637 46,647,377 46,833,142 52,255,083 7,024,720 7,702,435
----------- ----------- ----------- ----------- ------------ ----------- -----------
Gross profit.................. 29,811,560 35,480,293 46,499,249 45,946,203 55,165,931 7,053,699 7,552,129
----------- ----------- ----------- ----------- ------------ ----------- -----------
Advertising expense........... 13,040,696 12,585,281 15,706,008 14,946,888 17,412,363 1,309,807 1,521,469
Selling expense............... 762,756 695,772 867,495 951,119 1,138,862 204,994 227,489
General and administrative
expense..................... 3,387,127 4,413,000 4,941,438 5,678,104 6,541,282 1,591,251 2,240,898
Other (income) expense,
net......................... (342,562) 74,425 91,915 859,188 549,331 269,952 818,074
----------- ----------- ----------- ----------- ------------ ----------- -----------
Total operating expenses...... 16,848,017 17,768,478 21,606,856 22,435,299 25,641,838 3,376,004 4,807,930
----------- ----------- ----------- ----------- ------------ ----------- -----------
Income from operations........ 12,963,543 17,711,815 24,892,393 23,510,904 29,524,093 3,677,695 2,744,199
Interest (income)/expense,
net......................... (304,142) (155,257) 77,337 311,934 125,422 (774) 2,656
----------- ----------- ----------- ----------- ------------ ----------- -----------
Income before income taxes.... 13,267,685 17,867,072 24,815,056 23,198,970 29,398,671 3,678,469 2,741,543
Income taxes.................. 164,413 284,034 732,204 527,384 489,705 120,000 148,753
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net income................... $13,103,272 $17,583,038 $24,082,652 $22,671,586 $ 28,908,966 $ 3,558,469 $ 2,592,790
=========== =========== =========== =========== ============ =========== ===========
BALANCE SHEET DATA (END OF
PERIOD):
Working capital............... $17,158,736 $19,984,119 $26,200,156 $24,271,635 $ 30,693,805 $18,628,768 $18,745,052
Capital investment............ 342,749 362,389 193,767 412,653 913,509 236,675 113,197
Property, plant and equipment,
net......................... 986,103 1,116,376 1,067,679 1,238,283 1,777,707 1,422,155 1,218,950
Total assets.................. 21,497,019 25,043,036 32,925,169 29,707,050 39,406,782 35,874,372 46,052,013
Total shareholders' equity.... 18,439,841 19,036,495 23,944,835 22,173,657 29,110,597 16,763,873 17,166,218
- -------------
(1)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion of the results of operation, liquidity and
capital resources of the Miracle-Gro Companies for the three months ended
December 31, 1994 and 1993, and the years ended September 30, 1994, 1993 and
1992 should be read in conjunction with the Miracle-Gro Companies' combined
financial statements and the notes thereto appearing elsewhere in this Proxy
Statement/Prospectus and the information under "INFORMATION ABOUT THE
MIRACLE-GRO COMPANIES -- Selected Financial Data ."
The Miracle-Gro Companies' combined financial statements are presented
to reflect the combined financial position and results of operations of the
Miracle-Gro Companies, which are being acquired by the Company in the Merger
Transactions. Each Miracle-Gro Company is controlled (directly or indirectly)
by the same group of
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shareholders. Accordingly, the assets, liabilities and equity of the
individual Miracle-Gro Companies have been combined. All material intercompany
transactions and balances have been eliminated in such combination.
Each of the Miracle-Gro Companies (except Nurseries, which is
immaterial to the combined group) has elected to be treated as a Subchapter S
Corporation under the Code. Therefore, federal and most state income taxes are
paid by their Miracle-Gro Shareholders. As a result, the Miracle-Gro combined
financial statements include only those state and local income taxes payable
directly by the Miracle-Gro Companies. Because those companies are not taxable
under the Code, no deferred taxes have been provided in the combined financial
statements. See Note 2 in the Notes to the Stern's Miracle-Gro Products, Inc.
and Affiliate Companies Combined Financial Statements appearing elsewhere in
this Proxy Statement/Prospectus.
Results of Operations
Three Months Ended December 31, 1994 Compared with Three Months Ended
December 31, 1993
Net sales for the quarter ended December 31, 1994 were $15.3 million
compared to $14.1 million for the quarter ended December 31, 1993. The
increase of $1.2 million, or 8.4%, is attributable to sales volume increases in
the U.K. Net sales in the U.S. and Canada were $11.9 million compared to $12.6
million for the three months ended December 31, 1994 and 1993, respectively, a
decrease of $0.7 million, or 5.9%. Net sales in the U.K. were $3.4 million
compared to $1.4 million for the three months ended December 31, 1994 and 1993,
respectively, an increase of $2.0 million, or 132.9%.
Cost of sales of $7.7 million (50.5% of net sales) for the quarter
ended December 31, 1994 compared to $7.0 million (49.9% of net sales) for the
corresponding quarter in the prior year. This increase was primarily due to
the new lawn food which had a higher cost of sales than most of the other
Miracle-Gro products.
Operating expenses of $4.8 million for the quarter ended December 31,
1994 increased $1.4 million, or 30.7%, in the quarter ended December 31, 1993.
The two major components of this increase were increases in legal expenses and
bonuses paid to Zeneca. The legal expenses were related to the Agreement with
the Company in the U.S. and to a licensing agreement with Miracle Garden Care
in the U.K. This licensing agreement gave Miracle Garden Care a license to
produce and market Miracle-Gro products in exchange for approximately 32.5% of
the stock in Miracle Holdings, the parent of Miracle Garden Care.
Net income of $2.6 million for the three months ended December 31,
1994 was a decrease of $1.0 million from $3.6 million for the comparable period
of the prior year. This is mainly attributable to legal expenses and
the increased performance bonuses in the U.K. referred to above.
Fiscal 1994 Compared with Fiscal 1993
Net sales for the fiscal year ended September 30, 1994 were $107.4
million compared to $92.8 million for the fiscal year ended September 30, 1993.
The increase of $14.6 million, or 15.8%, is attributable to increased sales
volume across Miracle-Gro's product lines. Net sales in the U.S. and Canada
were $99.2 million compared to $87.1 million for the years ended September 30,
1994 and 1993, respectively, an increase of $12.1 million, or 13.9%. Net sales
in the U.K. were $8.2 million in fiscal 1994 compared to fiscal 1993, an
increase of $2.5 million, or 44%.
Cost of sales was $52.3 million (48.6% of net sales) for fiscal 1994
compared to $46.8 million (50.5% of net sales) for fiscal 1993. The increase
in cost of sales in fiscal 1994 was due to the higher sales volume. The
improved gross margin in fiscal 1994 was due primarily to lower chemical and
packaging costs and an increased proportion of direct sales to major retailers
which carry a higher margin.
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Operating expenses of $25.6 million in fiscal 1994 increased over the
prior year by $3.2 million, or 14.3%. The major components of this increase
were increased spending on merchandising programs designed to obtain increased
shelf presence, increased personnel expense and increased profit payments due
to U.K. distributors.
Net interest expense of $0.1 million in fiscal 1994 decreased by $0.2
million from the prior year due to increased cash levels in 1994 which
generated higher interest income.
Net income of $28.9 million in fiscal 1994 increased by $6.2 million
from $22.7 million in fiscal 1993. This increase is primarily attributable to
increased sales volume and gross margin, partially offset by increased
operating expenses.
Fiscal 1993 Compared with Fiscal 1992
Net sales for the fiscal year ended September 30, 1993 were $92.8
million compared to $93.1 million for the fiscal year ended September 30, 1992.
The decrease of $0.3 million, or 0.4%, was primarily attributable to an
unusually cold and wet springtime weather pattern throughout the U.S. Net
sales in the U.S. and Canada were $87.1 million compared to $88.6 million for
the years ended September 30, 1993 and 1992, respectively, a decrease of $1.5
million, or 1.7%. Net sales in the U.K. were $5.7 million for fiscal 1993
compared to $4.5 million for fiscal 1992, an increase of $1.2 million, or
26.0%.
Cost of sales of $46.8 million (50.5% of net sales) for fiscal 1993
compares to $46.6 million (50.1% of net sales) for fiscal 1992. The increase as
a percentage of net sales is attributable primarily to a shift in sales toward
lower margin products.
Operating expenses of $22.4 million in fiscal 1993 represents an
increase from the prior year of $0.8 million, or 3.8%. The major components of
this increase were a rise in G&A expenses due to increased personnel expense
and increased losses due to uncollectable receivables.
Net interest expense of $0.3 million in fiscal 1993 was an increase of
$0.2 million from the prior year due to higher inventory levels in 1993 which
required increased borrowing, generating more interest expense.
Net income of $22.7 million in fiscal 1993 represents a decrease of
$1.4 million from the previous year's $24.1 million due primarily to the
factors discussed above.
Liquidity and Capital Resources
Capital expenditures totaled $0.1 million and $0.2 million for the
three months ended December 31, 1994 and 1993, respectively, and $0.9 million
and $0.4 million for the fiscal years ended September 30, 1994 and 1993,
respectively. In 1994 Miracle-Gro's main expenditures were for new computers
and a new telephone system. Miracle-Gro UK's expenditures for both years were
for production machinery in the U.K. The Miracle-Gro Companies do not
anticipate any major capital expenditures in fiscal 1995.
Current assets of $44.1 million of December 31, 1994 increased by $9.9
million compared to current assets of $34.2 million on December 31, 1993. This
increase was due to higher levels of inventory in the U.K. and inventory of the
new lawn food products. Both of these inventories are needed for the expected
increased demand.
Total assets of $46.1 million on December 31, 1994 increased by $10.2
million compared to total assets of $35.9 million on December 31, 1993. This
increase was primarily due to the increased inventory levels.
Total liabilities of $28.9 million on December 31, 1994 increased by
$9.8 million compared to the total liabilities of $19.1 million on December 31,
1993. This increase was due to the increased accounts payable in the U.K. and
a line of credit incurred by Miracle-Gro Delaware. The increased accounts
payable in the U.K. was
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due to the increased inventory production and legal costs regarding the
licensing agreement discussed above. The Miracle-Gro Delaware line of
credit was used to build inventory.
Shareholders equity of $17.2 million on December 31, 1994 increased by
$0.4 million compared with shareholders equity of $16.8 million on December 31,
1993. This increase was primarily due to capital stock purchases of
Miracle-Gro Delaware and timing of Subchapter-S distributions.
Shareholders equity of $29.1 million on September 30, 1994 reflected an
increase of $6.9 million compared with shareholders equity on September 30,
1993. This increase was primarily due to undistributed Subchapter-S earnings.
The primary sources of liquidity for the Miracle-Gro Companies are
funds generated by operations, borrowings under a $25 million line of credit
with Chase Manhattan Bank ("Chase") that is secured by both accounts receivable
and inventory, and borrowings under a $10 million line of credit with the
Hagedorn Family Fund, a private partnership, the partners of which are six of
the Miracle-Gro Shareholders. The Chase line of credit is renewed annually and
is currently scheduled to expire on March 31, 1995, but is expected to be
extended in February 1995 for an additional year. Both lines of credit bear
interest at an interest rate of 1/4% under the Chase prime lending rate.
Interest on the Chase line of credit is payable on a monthly basis. Borrowings
under the Chase line of credit traditionally start in December and are fully
paid by the following May. All outstanding balances on this line have always
been completely paid by the end of the fiscal year in which they were incurred.
On December 31, 1994 borrowings under the Chase and Hagedorn Family Fund lines
of credit were $13.3 million and $7.2 million, respectively. These borrowings
are used to fund working capital requirements during the period when the
Miracle-Gro Companies offer customers spring dating terms for payment. The
Hagedorn Family Fund line of credit is payable on demand and had monthly
interest payments made through December 31, 1994. In connection with the
Merger Transactions, this line of credit will not earn interest after December
31, 1994 and the maximum amount to be borrowed is $8.5 million. After the
closing of the Merger Transactions, this line of credit will be paid in full.
In the opinion of Miracle-Gro's management, cash flows from operations
and capital resources will be sufficient to meet future working capital needs.
Inflation
Miracle-Gro is subject to the effects of changing prices. In recent
history these increases have not had any material impact. Historically,
Miracle-Gro has been able to pass along inflationary increases in its costs.
DISSENTERS' RIGHTS
Shareholders of the Company have no dissenters' rights with respect to
the Merger Transactions, the Acquisition or any other matter to be considered
at the Annual Meeting.
The Miracle-Gro Shareholders have unanimously approved the Merger
Transactions. Therefore, none of the Miracle-Gro Shareholders has any
dissenters' rights with respect to the Merger Transactions.
VALIDITY OF SHARES OF CLASS A
CONVERTIBLE PREFERRED STOCK
The validity of the shares of Class A Convertible Preferred Stock
offered hereby will be passed upon for the Company by Vorys, Sater, Seymour and
Pease, Columbus, Ohio.
EXPERTS
The consolidated balance sheets of the Company as of September 30,
1993 and 1994, and the consolidated statements of income, changes in
shareholder's equity (deficit) and cash flows for each of the three years in
the
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period ended September 30, 1994, incorporated in this Proxy
Statement/Prospectus by reference have been incorporated herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants ("Coopers &
Lybrand"), given upon their authority as experts in accounting and auditing.
The combined balance sheets of the Miracle-Gro Companies as of
September 30, 1993 and 1994, and the combined statements of income and retained
earnings and cash flows for each of the three years in the period ended
September 30, 1994, are included in this Proxy Statement/Prospectus in reliance
on the report of Joel E. Sammett & Co., independent accountants, given upon
their authority as experts in accounting and auditing.
INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Coopers & Lybrand
as the Company's independent auditors for the 1995 fiscal year. Coopers &
Lybrand, a certified public accounting firm, has served as the Company's
independent auditors since 1986.
A representative of Coopers & Lybrand is expected to be present at the
Annual Meeting to respond to appropriate questions and to make such statements
as he may desire.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals by shareholders intended to be presented at the 1996 Annual
Meeting of Shareholders must be received by the Secretary of the Company no
later than November [8], 1995, to be included in the Company's proxy, notice of
meeting and proxy statement relating to such meeting and should be mailed to
The Scotts Company, 14111 Scottslawn Road, Marysville, Ohio 43041, Attention:
Secretary.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be
presented for action at the 1995 Annual Meeting. If any other matter requiring
a vote of the shareholders properly comes before the Annual Meeting, the
persons authorized under management proxies will vote and act according to
their best judgments in light of the conditions then prevailing.
ANNUAL REPORT
The Company's 1994 Annual Report to Shareholders containing audited
financial statements for the 1994 Fiscal Year is being mailed to all
shareholders of record with this Proxy Statement/Prospectus.
The form of proxy and the Proxy Statement/Prospectus have been
approved by the Board of Directors of the Company and are being mailed and
delivered to shareholders by its authority.
Craig D. Walley
Vice President and Secretary
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INDEX TO FINANCIAL STATEMENTS
I. THE SCOTTS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED FINANCIAL INFORMATION PRELIMINARY
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Pro Forma Consolidated Statement of Income Preliminary for the Fiscal Year Ended
September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Pro Forma Consolidated Statement of Income Preliminary for the Fiscal Year
Ended September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Pro Forma Consolidated Statement of Income Preliminary for the Three Months Ended
December 31, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Pro Forma Consolidated Statement of Income Preliminary for the Three Months
Ended December 31, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Pro Forma Consolidated Balance Sheet Preliminary as of December 31, 1994 (Unaudited) . . . . . . . . F-9
Notes to Pro Forma Consolidated Balance Sheet Preliminary as of December 31,
1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
II. STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES COMBINED FINANCIAL INFORMATION . F-11
A. FISCAL YEAR ENDED SEPTEMBER 30, 1994
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
Combined Balance Sheets as of September 30, 1993 and 1994 . . . . . . . . . . . . . . . . . . . . . . F-13
Combined Statements of Income and Retained Earnings for the Fiscal Years
Ended September 30, 1992, 1993 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Combined Statements of Cash Flows for the Fiscal Years Ended September 30,
1992, 1993 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
B. FISCAL QUARTER ENDED DECEMBER 31, 1994
Combined Balance Sheets as of December 31, 1993 and 1994 and September 30,
1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Combined Statements of Income and Retained Earnings for the Three Months
Ended December 31, 1993 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . F-29
Combined Statements of Cash Flows for the Three Months Ended December 31,
1993 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Notes to Combined Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-31
F-1
70
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
PRELIMINARY
Introduction
On January 26, 1995, The Scotts Company ("Scotts" or "the Company"), the
Miracle-Gro Companies ("Miracle-Gro") and the Miracle-Gro Shareholders entered
into a merger agreement ("the Agreement). Pursuant to the Agreement,
Miracle-Gro will become wholly owned by the Company and the Company will issue
$195 million of face amount Class A Convertible Preferred Stock and warrants to
purchase three million common shares. The transaction will be accounted for
using the purchase method of accounting. The Class A Convertible Preferred
Shares will be convertible into common shares at $19.00 per share, will pay
dividends at a rate of 5.0% per annum, will be non-callable for five years and
will be subject to certain restrictions on transfer. The warrants will be
exercisable for eight and one-half years in three series for one million common
shares each at $21.00, $25.00 and $29.00 per share, respectively.
The purchase price for the Miracle-Gro Companies in these pro forma financial
statements is based on the fair value of the Class A Convertible Preferred
Shares and warrants as of closing and is estimated to be approximately $200
million. The transaction is subject to, among other things, approval of the
Company's shareholders.
This pro forma consolidated financial information is preliminary and will
likely be affected by changes in the market value of Scotts common shares,
timing of closing the transaction and other factors beyond the control of the
Company or Miracle-Gro.
The following unaudited Pro Forma Consolidated Statement of Income gives effect
to the merger of Scotts and Miracle-Gro as if the transaction, which is
expected to be completed by early April 1995, had taken place on October 1,
1993. The following unaudited Pro Forma Consolidated Balance Sheet gives
effect to the acquisition as if the transaction had occurred on December 31,
1994.
The unaudited pro forma adjustments are described in the accompanying notes to
the pro forma consolidated financial statements. The unaudited pro forma
consolidated financial statements should be read in conjunction with the notes
thereto and the consolidated financial statements of Scotts included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1994, and
the combined financial statements of Miracle-Gro presented elsewhere in this
Form S-4.
The pro forma consolidated financial statements do not purport to be indicative
of the Company's financial position at December 31, 1994 or the results of
operations which actually would have occurred had the acquisition taken place
on October 1, 1993, nor do they purport to indicate the future results of
operations of the merged companies.
F-2
71
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
PRELIMINARY
For the year ended September 31, 1994
(Unaudited)
(in thousands except per share amounts)
SUBTOTAL
THE SCOTTS SIERRA PRO FORMA AS
COMPANY PRO FORMA PREVIOUSLY MIRACLE-GRO PRO FORMA
HISTORICAL REFER TO NOTE (A) PRESENTED HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------------- ----------- ----------- ----------- ---------
Net Sales $606,339 $20,826 $627,165 $107,421 $ (8,355)(1) $726,231
Cost of Sales 319,730 10,642 330,372 52,255 (7,305)(1)(2) 375,322
-------- ------- -------- -------- -------- --------
Gross Profit 288,609 10,184 296,793 55,166 (1,050) 350,909
-------- ------- -------- -------- -------- --------
Marketing 100,106 5,233 105,339 18,551 (129)(1)(3) 123,761
Distribution 84,407 989 85,396 - 2,957 (4) 88,353
General and administrative 30,189 2,086 32,275 6,541 (2,081)(1)(5) 36,735
Research and development 10,352 906 11,258 - - 11,258
Other expense, net 2,283 582 2,865 550 2,866 (1)(6) 6,281
-------- ------- -------- -------- -------- --------
Income from operations 59,272 388 59,660 29,524 (4,663) 84,521
Interest expense 17,450 1,460 18,910 125 - 19,035
-------- ------- -------- -------- -------- --------
Income before income taxes
and extraordinary item 41,822 (1,072) 40,750 29,399 (4,663) 65,486
Income taxes 17,947 (965) 16,982 490 11,250 (7) 28,722
-------- ------- -------- -------- -------- --------
Net Income before
extraordinary item $ 23,875 $ (107) $ 23,768 $ 28,909 $(15,913) $ 36,764
======== ======= ======== ======== ======== ========
Earnings per common share -
primary and fully diluted $ 1.27 $ (1.27) $ 1.27
======== ======== ========
See Notes to Pro Forma Consolidated Statement of Income
F-3
72
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
PRELIMINARY
For the year ended September 30, 1994
(Unaudited)
(amounts in thousands)
I. PRO FORMA ADJUSTMENTS
Prior Significant Acquisition
(A) On December 17, 1993, Scotts purchased Grace-Sierra Horticultural
Products Company ("Sierra"). The pro forma consolidated statement of
income for the year ended September 30, 1994 reflects this acquisition as
if it had occurred on October 1, 1992, as previously reported, giving
effect to pro forma adjustments for depreciation and amortization of
tangible and intangible assets, interest and expenses on acquisition
indebtedness, and income taxes. The Company's consolidated balance sheet
as of December 31, 1994 and consolidated statement of income for the
three months ended December 31, 1994 include Sierra for the entire period.
Miracle-Gro Limited Transaction
(1) The historical combined financial statements of Miracle-Gro include the
revenues and expenses of Miracle-Gro Products Limited ("Limited"). On
December 31, 1994, Limited entered into an agreement to exchange its
equipment and a license for distribution of Miracle-Gro products in
certain areas of Europe for a 32.5% equity interest in a U.K. based garden
products company. In future periods, this investment will be accounted
for on the equity method. Accordingly, the Pro Forma Consolidated
Statement of Income has been adjusted to reflect the net income of
Limited for the year ended September 30, 1994 as if it had been accounted
for as an equity investment as follows:
To reclassify Limited income statement accounts:
Net sales $ 8,355
Cost of sales $ 4,456
Marketing expense $ 1,868
General and administrative expense $ 304
Other expense $ 807
-----------
Net income as reclassified to pro forma other expense, net $ 920
===========
This reclassification reflects the historical Limited results and not the
results that would have been reported had the 32.5% interest in the U.K.
based garden products company been held for the year. The historical
income of Limited reflected on the equity method of accounting is not
necessarily indicative of Limited's share of future earnings attributable
to its equity investment.
Miracle-Gro Acquisition
The following pro forma adjustments are made to reflect the application of
purchase accounting and certain adjustments to conform the Miracle-Gro
financial statement classifications to the Scotts presentation.
(2) To record additional depreciation ($50); to reclassify distribution
expense ($2,957) recorded as cost of sales to distribution; and to
reclassify depreciation ($58) to cost of sales from general and
administrative.
F-4
73
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
PRELIMINARY
For the year ended September 30, 1994
(Unaudited)
(amounts in thousands)
(3) To reclassify sales and marketing related salaries and fringe benefits
($1,739) from general and administrative to marketing.
(4) To reclassify distribution expense ($2,957) from cost of sales.
(5) To record additional depreciation on buildings and amortization of a
favorable land lease ($20); to reclassify sales and marketing salaries
($1,739) to marketing; and to reclassify depreciation ($58) to cost of
sales.
(6) To record amortization of acquired trademarks and goodwill ($4,593) over
40 years.
(7) To record additional income tax expense assuming Miracle-Gro had been
taxed as C Corporations and to record the tax effect of pro forma
adjustments; historically Miracle-Gro shareholders had elected Subchapter
S Corporation status under the Internal Revenue Code.
II. EARNINGS PER COMMON SHARE
For purposes of computing earnings per share, the convertible preferred
stock is considered a common stock equivalent. Pro forma primary and
fully-diluted earnings per share for the year ended September 30, 1994 are
calculated using the weighted average common shares outstanding for Scotts
of 18,784,729 and the common shares that would have been issued assuming
conversion of preferred stock at the beginning of the year of 10,263,158
common shares. The computation of pro forma primary earnings per share
assuming reduction of earnings for preferred dividends and no conversion
of preferred stock was antidilutive.
F-5
74
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
PRELIMINARY
For the three months ended December 31, 1994
(Unaudited)
(in thousands except per share amounts)
The Scotts
Company Miracle-Gro Pro Forma
Historical Historical Adjustments Pro Forma
---------- ----------- ----------- ---------
Net Sales $98,019 $15,255 $(3,368)(1) $109,906
Cost of Sales 53,520 7,702 (2,093)(1)(2) 59,129
------- ------- ------- --------
Gross Profit 44,499 7,553 (1,275) 50,777
------- ------- ------- --------
Marketing 19,902 1,749 357 (1)(3) 22,008
Distribution 14,540 546 (4) 15,086
General and Administrative 2,765 2,241 (746)(1)(5) 4,260
Research and development 5,967 5,967
Other expense, net 995 818 (266)(1)(6) 1,547
------- ------- ------- --------
Income from operations 330 2,745 (1,166) 1,909
Interest expense 5,694 3 5,697
------- ------- ------- --------
Income (loss) before income taxes
and extraordinary item (5,364) 2,742 (1,166) (3,788)
Income taxes (2,226) 149 948 (7) (1,129)
------- ------- ------- --------
Net income (loss) $(3,138) $ 2,593 (2,114) $ (2,659)
======= ======= ======= ========
Earnings per common share - primary
and fully diluted $ (0.17) $ (0.27)
======= ========
See Notes to Pro Forma Consolidated Statement of Income
F-6
75
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
PRELIMINARY
For the three months ended December 31, 1994
(Unaudited)
(amounts in thousands)
I. PRO FORMA ADJUSTMENTS
---------------------
Miracle-Gro Limited Transaction
- -------------------------------
(1) The historical combined financial statements of Miracle-Gro include the
revenues and expenses of Miracle-Gro Products Limited ("Limited"). On
December 31, 1994, Limited entered into an agreement to exchange its
equipment and a license for distribution of Miracle-Gro products in
certain areas of Europe for a 32.5% equity interest in a U.K. based
garden products company. In future periods, this investment will be
accounted for on the equity method. Accordingly, the Pro Forma
Consolidated Statement of Income has been adjusted to reflect the net
income of Limited for the three months ended December 31, 1994 as if it
had been accounted for as an equity investment as follows:
To reclassify Limited income statement accounts:
Net sales $ 3,368
Cost of sales $ (1,575)
Marketing expense $ ( 78)
General and administrative $ (301)
Other expense $ (839)
---------
Net income as reclassified to pro forma
other expense, net $ 575
=========
This reclassification reflects the historical Limited results and not
the results that would have been reported had the 32.5% interest in U.K.
based garden products company been held for the period. The historical
income of Limited reflected on the equity method of accounting is not
necessarily indicative of Limited's share of future earnings attributable
to its equity investment.
Miracle-Gro Acquisition
- -----------------------
The following pro forma adjustments are made to reflect the application of
purchasing accounting and certain adjustments to conform the Miracle-Gro
financial statement classifications to the Scotts presentation.
(2) To record additional depreciation ($13); to reclassify distribution
expense ($546) recorded as cost of sales to distribution; and to
reclassify depreciation ($15) to cost of sales from general and
administrative.
(3) To reclassify sales and marketing related salaries and fringe benefits
($435) from general and administrative to marketing.
(4) To reclassify distribution expense ($546) from cost of sales.
F-7
76
(5) To record additional depreciation on buildings and amortization of a
favorable land lease ($5); to reclassify sales and marketing salaries
($435) to marketing; and to reclassify depreciation ($15) to cost of
sales.
(6) To record amortization of acquired trademarks and goodwill ($1,148)
over 40 years.
(7) To record additional income tax expense assuming Miracle-Gro had been
taxed as C Corporations and to record the tax effect of pro forma
adjustments; historically Miracle-Gro stockholders had elected
Subchapter S Corporation status under the Internal Revenue Code.
II. EARNINGS PER COMMON SHARE
-------------------------
For purposes of computing earnings per share, the convertible preferred
stock is considered to be a common stock equivalent. Pro forma primary
and fully-diluted earnings per share for the three months ended December
31, 1994 are calculated using the weighted average common shares
outstanding for Scotts of 18,667.064. The pro forma net loss of $2,659
has been increased by the preferred stock dividend of $2,438 to
determine the loss applicable to common shares. The computation of pro
forma primary earnings per share assuming conversion of the preferred
stock at the beginning of the three month period was antidilutive.
F-8
77
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
PRELIMINARY
As of December 31, 1994
(Unaudited)
(in thousands)
The Scotts
Company Miracle-Gro Pro Forma
Historical Historical Adjustments Pro Forma
---------- ----------- ----------- ---------
ASSETS
Current assets
Cash $ 5,410 - - $ 5,410
Accounts receivable, net 128,454 $ 15,277 $ (2,633)(2) 41,098
Inventories 145,095 28,429 (4,021)(2) 169,503
Prepaid and other current assets 19,735 425 300 (2)(3) 20,460
------- ------ ------- -------
Total current assets 298,694 44,131 (6,354) 336,471
Property, plant and equipment, net 141,556 1,783 396 (2)(4) 143,735
Trademarks, patents and other intangibles 27,485 75,000 (5) 102,485
Goodwill 103,926 108,703 (5) 212,629
Other assets 4,957 138 10,186 (2) 15,281
------- ------ ------- -------
Total assets $ 576,618 $ 46,052 $ 187,931 $ 810,601
======= ====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Revolving credit $ 68,062 $ 16,931 $ 84,993
Current portion of term debt 5,540 5,540
Accounts payable 53,565 6,438 $ 5,614 (2)(6) 65,617
Other current liabilities 36,100 2,017 2,792 (2)(8) 40,909
------- ------ ------- ------
Total current liabilities 163,267 25,386 8,406 197,059
Long-term debt 217,618 3,500 (3,500)(2) 217,618
Post retirement benefits other than
pensions 27,180 27,180
Other noncurrent liabilities 3,492 1,191 (3)(7) 4,683
------- ------ ------- -------
Total liabilities 411,557 28,886 6,097 446,540
------- ------ ------- -------
Shareholders' Equity
Preferred stock 187,200 (1) 187,200
Common stock 211 9,456 (9,456)(1) 211
Capital in excess of par value 193,418 240 11,560 (1) 205,218
Retained earnings 10,737 7,470 (7,470)(1) 10,737
Cumulative translation gain 2,136 2,136
Treasury stock (41,441) (41,441)
------- ------ ------- -------
Total shareholders' equity 165,061 17,166 181,834 364,061
------- ------ ------- -------
Total liabilities and shareholders'
equity $ 576,618 $ 46,052 $187,931 $810,601
======= ====== ======= =======
See Notes to Pro Forma Consolidated Balance Sheet
F-9
78
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
PRELIMINARY
As of December 31, 1994
(Unaudited)
(amounts in thousands)
(1) To record the issuance of 5% convertible preferred stock with an estimated
market value of $187,200 and a face value of $195,000 and warrants to
purchase common stock with an estimated market value of $11,800 as
consideration to acquire Miracle-Gro, and to eliminate the historical
shareholders' equity of Miracle-Gro.
(2) On December 31, 1994, Limited entered into an agreement to exchange its
equipment and a license for distribution of Miracle-Gro products in certain
areas of Europe for a 32.5% equity interest in a U.K. based garden products
company. Current assets, comprised primarily of accounts receivable and
inventories will be disposed of in satisfaction of current liabilities and
long-term debt with any residual cash remaining with Limited. The pro forma
effect is as follows:
To record the contribution of equipment at net book value and Investment in
the new company at fair value:
Equipment $ (604)
Other assets-investment $ 10,186
To reflect disposition of assets in satisfaction of liabilities:
Accounts receivable $ (2,633)
Inventories $ (4,021)
Prepaid and other current assets $ (140)
Accounts payable $ 2,486
Accrued liabilities $ 808
Long-term debt $ 3,500
(3) To record a current deferred tax asset ($440) and non-current deferred tax
liability ($400) for differences in the financial reporting and tax bases of
certain acquired liabilities and fixed assets.
(4) To record buildings and equipment ($1,000) at estimated fair value.
(5) To record the estimated fair value of Miracle-Gro trademarks ($75,000) and
to record the excess of purchase price over the underlying value of net
assets acquired (goodwill).
(6) To record the estimated liability ($8,100) for distributions to be made to
Miracle-Gro shareholders pursuant to the purchase agreement. The total
liability is estimated to be $22,000 based on the expected increase in
Miracle-Gro's net assets from normal operations through the transaction
closing date.
(7) To record the excess of the projected benefit obligation over the plan
assets ($791) of the Miracle-Gro defined benefit pension plan.
(8) To record for estimated transaction costs ($3,600).
F-10
79
STERN'S MIRACLE-GRO PRODUCTS, INC.
AND
AFFILIATED COMPANIES
COMBINED FINANCIAL INFORMATION
FOR
FISCAL YEAR ENDED SEPTEMBER 30, 1994
AND
THREE MONTHS ENDED DECEMBER 31, 1994
F-11
80
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Stern's Miracle-Gro Products, Inc.
We have audited the accompanying combined balance sheets of Stern's Miracle-Gro
Products, Inc. and affiliated companies as of September 30, 1993 and 1994, and
the related combined statements of income and retained earnings, and cash flows
for each of the three years in the period ended September 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Stern's Miracle-Gro
Products, Inc. and affiliated companies as of September 30, 1993 and 1994, and
the combined results of their operations and their combined cash flows for each
of the three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
Joel E. Sammet & Co.
Certified Public Accountants
New York, New York
January 26, 1995
F-12
81
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
AS OF
SEPTEMBER 30,
1993 1994
----------- -----------
ASSETS
Current Assets
- --------------
Cash and cash equivalents $11,746,627 $16,403,197
Accounts receivable - trade 1,412,207 3,344,878
Inventories 14,825,635 16,796,721
Other current assets 320,559 373,080
----------- -----------
Total Current Assets 28,305,028 36,917,876
----------- -----------
Property and equipment - cost 2,655,982 3,489,965
Less: Accumulated depreciation 1,417,699 1,712,258
----------- -----------
1,238,283 1,777,707
----------- -----------
Other Assets 163,739 139,085
----------- -----------
TOTAL ASSETS $29,707,050 $38,834,668
=========== ===========
See notes to combined financial statements.
F-13
82
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
AS OF
SEPTEMBER 30,
1993 1994
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Accounts payable $ 484,311 $ 1,103,347
Other current liabilities 1,784,992 3,636,278
Due to United Kingdom Distributor 1,157,361 780,657
Accrued taxes 606,729 703,789
----------- -----------
Total Current Liabilities 4,033,393 6,224,071
----------- -----------
Long-term debt 3,500,000 3,500,000
----------- -----------
Total Liabilities 7,533,393 9,724,071
----------- -----------
Stockholders' Equity
- --------------------
Capital stock 8,456,106 9,456,006
Paid in capital 240,000 240,000
Retained earnings 13,477,845 19,414,885
----------- -----------
Total 22,173,951 29,110,891
Less: Treasury stock 294 294
----------- -----------
Total Stockholders' Equity 22,173,657 29,110,597
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,707,050 $38,834,668
=========== ===========
See notes to combined financial statements.
F-14
83
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30,
1992 1993 1994
----------- ----------- ------------
Net sales $93,146,626 $92,779,345 $107,421,014
Cost of goods sold 46,647,377 46,833,142 52,255,083
----------- ----------- ------------
Gross profit 46,499,249 45,946,203 55,165,931
----------- ----------- ------------
Advertising expenses 15,706,008 14,946,888 17,412,363
Selling expenses 867,495 951,119 1,138,862
General and administrative expenses 4,941,438 5,678,104 6,541,282
Other income (expense) - net 91,915 859,188 549,331
----------- ----------- ------------
Total Operating Expenses 21,606,856 22,435,299 25,641,838
----------- ----------- ------------
Operating profit 24,892,393 23,510,904 29,524,093
Interest expense - net 77,337 311,934 125,422
----------- ----------- ------------
Income before taxes 24,815,056 23,198,970 29,398,671
Provision for state income taxes 732,204 527,384 489,705
----------- ----------- ------------
Net income 24,082,852 22,671,586 28,908,966
Retained earnings - October 1, 10,581,589 15,489,929 13,477,845
----------- ----------- ------------
Total 34,664,441 38,161,515 42,386,811
Less: Distribution to shareholders 19,174,512 24,683,670 22,971,926
----------- ----------- ------------
RETAINED EARNINGS
- SEPTEMBER 30, $15,489,929 $13,477,845 $ 19,414,885
=========== =========== ============
See notes to combined financial statements.
F-15
84
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
1992 1993 1994
----------- ----------- -----------
Cash Flows From (Used by) Operating Activities
- ----------------------------------------------
Net income $24,082,852 $22,671,586 $28,908,966
----------- ----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
- -----------------------------------------
Depreciation and amortization 236,092 243,625 377,239
Changes in Assets and Liabilities
- ---------------------------------
(Increase) Decrease in accounts receivable 1,147,187 677,638 (1,932,671)
(Increase) Decrease in inventories (1,511,723) (2,095,818) (1,971,086)
(Increase) Decrease in other current assets 11,052 (37,550) (52,521)
(Increase) Decrease in other assets -0- -0- (37,500)
(Decrease) Increase in accounts payable 1,463,141 (1,305,432) 619,036
(Decrease) Increase in other current
liabilities 310,652 (141,509) 1,571,642
------------ ------------ ------------
Total Adjustments 1,656,401 (2,659,046) (1,425,861)
------------ ------------ ------------
Net Cash Flows From
Operating Activities 25,739,253 20,012,540 27,483,105
------------ ------------ ------------
Cash Flows From (Used in) Investing Activities
- ----------------------------------------------
Cost of fixed asset acquisitions (193,768) (412,653) (913,509)
Cost of intangible assets acquired -0- (47,316) -0-
Sale of fixed assets 6,372 -0- -0-
------------ ------------ ------------
Net Cash Flows (Used in)
Investing Activities (187,396) (459,969) (913,509)
------------ ------------ ------------
See notes to combined financial statements.
F-16
85
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
1992 1993 1994
------------ ------------ ------------
Cash Flows From (Used in) Financing Activities
- ----------------------------------------------
Note payments received from shareholders $ 59,000 $ 59,000 $ 59,000
Paid in capital contributed -0- 240,000 -0-
Capital stock issued -0- -0- 999,900
Purchase of treasury stock -0- (294) -0-
Distribution to shareholders (19,174,512) (24,683,669) (22,971,926)
Increase in loan payable 1,200,000 -0- -0-
------------ ------------ ------------
Net Cash Flows (Used in)
Financing Activities (17,915,512) (24,384,963) (21,913,026)
------------ ------------ ------------
Net increase (decrease) in cash
and equivalents 7,636,345 (4,832,392) 4,656,570
Cash and equivalents at beginning of year 8,942,674 16,579,019 11,746,627
------------ ------------ ------------
CASH AND EQUIVALENTS
AT END OF YEAR $16,579,019 $11,746,627 $16,403,197
=========== =========== ===========
Supplemental Cash Flow
Information:
- -----------
Interest Paid $ 640,078 $ 688,944 $ 645,626
=========== =========== ==========
Income Taxes Paid $ 557,970 $ 561,531 $ 260,766
=========== =========== ==========
See notes to combined financial statements.
F-17
86
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Stern's Miracle-Gro Products, Inc. ("MG, Inc."), Miracle-Gro Products,
Ltd. ("MG, Ltd."), Miracle-Gro Lawn Products, Inc. ("Lawn Products")
and Stern's Nurseries, Inc. ("Stern's"), collectively "The Company" or
"Miracle-Gro".
The Company is engaged in the marketing and distribution of plant
foods and lawn and garden products primarily in the United States,
Canada and through MG, Ltd. in the United Kingdom.
The combined financial statements are presented to reflect the
combined financial position and results of operations of the companies
to be acquired pursuant to the transaction described in the second
paragraph of Note 11. Each of the above companies is controlled by
the same group of shareholders (directly or indirectly). Accordingly,
the assets, liabilities and equity of the individual entities have
been combined. All material intercompany transactions and balances
have been eliminated in combination. Another company similarly
controlled, Necessary Organics, Inc., has not been included in the
presentation as it is not part of the group of companies to be
acquired.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY
The functional currency of the Company is the United States Dollar.
MG, Ltd. operates in the United Kingdom, but is essentially financed
and supported by the United States affiliated companies. Exchange
gains and losses are included in determining net income. Exchange
gains and (losses) were ($88,544), ($604,888) and $228,495 for fiscal
years ended September 30, 1992, 1993 and 1994, respectively.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products to customers.
F-18
87
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
INVENTORIES
Inventories are valued at the lower of cost or market under the
Last-In First-Out (LIFO) method. At September 30, 1993 and 1994
inventories were comprised of the following:
1993 1994
---- ----
Raw Materials $ 4,946,812 $ 5,858,804
Finished Goods 9,689,738 10,579,723
----------- -----------
FIFO Cost $14,636,550 $16,438,527
LIFO Reserve 189,085 358,194
----------- -----------
$14,825,635 $16,796,721
=========== ===========
INCOME TAXES
Each of the affiliated companies in the combined financial statements
(except for Stern's) has elected to be treated as a Subchapter S
Corporation under the Internal Revenue Code. Therefore, federal and
most state income taxes are paid by their shareholders. As a result,
the Combined Financial Statements include only those state and local
income taxes payable directly by the affiliated companies.
Had such companies been C Corporations, additional provisions for
income taxes of $8,450,000, $8,056,000 and $10,400,000 would have been
required in the fiscal years ended September 30, 1992, 1993 and 1994,
respectively.
As the entities are not taxable under the Internal Revenue Code, no
deferred taxes have been provided in the combined statements.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives and under methods as established under the
Internal Revenue Code.
ACCOUNTS RECEIVABLE
Accounts receivable are directly written-off to bad debt expense when
it is determined that they are uncollectible. Bad debt expense
amounted to ($9,223), $241,198 and $46,394 in fiscal years ended
September 30, 1992, 1993 and 1994, respectively.
F-19
88
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments with
an original maturity of three months or less.
The Company has cash and cash equivalent accounts maintained in
Sterling and Canadian Dollars. The United States Dollar equivalent
balance of the accounts at September 30, was:
1993 1994
---- ----
Sterling $2,804,000 $1,586,000
========== ==========
Canadian Dollars $1,411,000 $ 877,000
========== ==========
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment, at cost, at September 30, 1993 and 1994
consisted of the following:
1993 1994
---- ----
Gross Net Gross Net
----- --- ----- ---
Building $ 349,265 $ 107,150 $ 349,265 $ 83,865
Building improvements 436,785 309,936 487,186 335,042
Furniture and fixtures 345,216 54,454 614,708 248,169
Molds 624,977 135,980 721,077 173,889
Equipment 394,777 313,126 777,680 575,893
Transportation equipment 504,962 317,637 540,049 360,849
---------- ---------- ---------- -----------
TOTAL $2,655,982 $1,238,283 $3,489,965 $1,777,707
========== ========== ========== ==========
The Company recognized depreciation expense on property and equipment
of $236,092, $242,147 and $374,085 in fiscal years ended September 30,
1992, 1993, and 1994, respectively.
F-20
89
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
The Company leases the land upon which its corporate headquarters is
located under an operating lease agreement expiring on September 30,
2062, at a net rental of $12,000 per year. The agreement also
provides the Company with the right of first refusal on any sale of
the land. Future minimum rentals as of September 30, 1994 under this
agreement are as follows:
1995 $ 12,000
1996 12,000
1997 12,000
1998 12,000
1999 12,000
thereafter 756,000
NOTE 4 RELATED PARTY TRANSACTIONS
The Company periodically borrows for working capital purposes from an
affiliated entity, The Hagedorn Family Fund ("HFF"). Borrowings under
this facility bear interest at 1/4% below the prime lending rate. The
maximum borrowings under this facility during the fiscal year ended
September 30, 1994 were $5,000,000.
MG, Ltd. has a note payable to the HFF of $3,500,000 as of September
30, 1994. This note bears interest at 1/4% below the prime lending
rate and is due on demand.
NOTE 5 EMPLOYEE BENEFIT PLANS
The Company maintains a Defined Benefit Pension Plan qualified under
Section 401 of the Internal Revenue Code covering substantially all
full-time employees who have completed six months of service and
reached the age of 20.5 years. The benefits under this plan are 29.5%
of the participants' average monthly salary attained during their five
highest consecutive years.
F-21
90
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
The following table sets forth the plan's funded status as of January
31, 1993 and 1994:
1993 1994
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested benefits $(1,253,995) $(1,493,723)
Nonvested benefits (11,647) (11,147)
Additional obligation for projected
compensation increases (589,403) (662,166)
----------- -----------
Projected benefit obligation for services
rendered to date (1,855,045) (2,167,036)
Plan assets at fair value 1,143,447 1,315,712
----------- -----------
Plan assets less than projected benefit obligation (711,598) (851,324)
Unrecognized net obligation 25,857 24,336
Unrecognized net loss 535,597 608,707
----------- -----------
Accrued pension liability $ (150,144) $ (218,281)
=========== ===========
Periodic pension expense for fiscal years ended September 30 includes
the following components:
1992 1993 1994
---- ---- ----
Service cost $127,237 $170,128 $193,506
Interest cost 79,186 131,998 153,338
Actual return on plan assets (2,807) (27,765) (9,337)
Net amortization and deferral (72,401) (37,564) (76,544)
-------- -------- --------
Net pension expense $131,215 $236,797 $260,963
======== ======== ========
The weighted average settlement rate used in determining the actuarial
present value of the projected benefit obligation was 8.5%. Future
compensation was assumed to increase at 7% annually and the long-term
rate of return on plan assets was 8.5% for the plan years ended
January 31, 1992, 1993 and 1994.
F-22
91
The Company has adopted a salary reduction Plan under Internal Revenue
Code Section 401(K). The Company's contribution thereto was $25,000,
$29,000 and $33,000 respectively for the fiscal years ended September
30, 1992, 1993 and 1994, and the related expenses were $11,303,
$11,035 and $12,153 resulting in a total expense of $36,303, $40,035
and $45,153 respectively.
F-23
92
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 6 LINE OF CREDIT ARRANGEMENT
The Company maintains a secured line of Credit facility with the Chase
Manhattan Bank for up to $25,000,000. This line bears interest at a
rate of prime less 1/4% and expires on March 31, 1995. During the
fiscal year ended September 30, 1994, the Company's maximum borrowings
on this facility were $13,135,000.
NOTE 7 CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk are
accounts receivable. The Company sells its products through a
distributor network and directly to mass merchandisers. In fiscal
year ended September 30, 1992 four customers accounted for 17.7%,
11.9%, 11% and 6.8% of sales, respectively. In fiscal year ended
September 30, 1993 four customers accounted for 19.8%, 10%, 9.8% and
7.8% of sales, respectively. In fiscal year ended September 30, 1994
four customers accounted for 18.8%, 10.3%, 7.5% and 5.8% of sales,
respectively.
NOTE 8 STOCKHOLDER'S EQUITY
For purposes of these combined statements, the stockholders' equity of
each of the affiliated companies has been combined as if the companies
had been combined as of the beginning of the first period presented.
The following table summarizes stockholders' equity activity since
September 30, 1991:
Lawn
COMMON STOCK MG, Inc. MG, Ltd. Products Stern's Total
- ------------ -------- -------- -------- ------- -----
Balance as of
October 1, 1991 $7,454,906 $1,000,000 $1,200 $8,456,106
========== ========== ====== ==========
Balance as of
September 30, 1992 7,454,906 1,000,000 1,200 8,456,106
========== ========== ====== ==========
Balance as of
September 30, 1993 7,454,906 1,000,000 1,200 8,456,106
========== ========== ====== ==========
Issuance of Common
Stock of Lawn
Products, Inc. $999,900 999,900
-------- ----------
Balance as of
September 30, 1994 $7,454,906 $1,000,000 $999,900 $1,200 $9,456,006
========== ========== ======== ====== ==========
F-24
93
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
Lawn
RETAINED EARNINGS MG, Inc. MG, Ltd. Product Stern's Total
- ----------------- -------- -------- ------- ------- -----
Balance as of
October 1, 1991 $11,173,081 $(591,492) -0- $10,581,589
=========== ======== ===========
Net Income 24,683,670 (600,818) -0- 24,082,852
Distributions to
shareholders (19,174,512) (19,174,512)
----------- --------- --- -----------
Balance as of
September 30, 1992 $16,682,239 $(1,192,310) -0- $15,489,929
=========== ========== === ===========
Net Income 22,971,766 (300,180) -0- 22,671,586
Distributions to
shareholders (24,683,670) (24,683,670)
----------- --------- --- -----------
Balance as of
September 30, 1993 $14,970,335 $(1,492,490) -0- $13,477,845
=========== ========== === ===========
Net Income 28,501,169 919,289 $(511,492) -0- 28,908,966
Distributions to
shareholders (22,971,926) (22,971,926)
----------- --------- --------- --- -----------
Balance as of
September 30, 1994 $20,499,578 $(573,201) $(511,492) -0- $19,414,885
=========== ======== ========= === ===========
F-25
94
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 9 SEGMENT INFORMATION
The Company operates primarily in the United States and the United
Kingdom. A summary of the Company's operations by geographic region
is presented below:
1992 1993 1994
---- ---- ----
SALES:
United States $88,640,138 $87,100,160 $ 99,213,260
United Kingdom 4,506,488 5,679,185 8,207,754
----------- ----------- ------------
Total Sales $93,146,626 $92,779,345 $107,421,014
=========== =========== ============
NET INCOME:
United States $24,683,670 $22,971,766 $27,989,677
United Kingdom (600,818) (300,180) 919,289
----------- ----------- -----------
Total Net Income $24,082,852 $22,671,586 $28,908,966
=========== =========== ===========
IDENTIFIABLE ASSETS:
United States $26,962,851 $24,656,191 $32,397,154
United Kingdom 5,963,518 5,050,859 6,437,514
----------- ----------- -----------
Total Assets $32,926,369 $29,707,050 $38,834,668
=========== =========== ===========
NOTE 10 UNITED KINGDOM DISTRIBUTION AGREEMENT
The Company, through MG, Ltd., had a joint-venture agreement with a
major English corporation for manufacture and distribution of its
products in the United Kingdom. Joint-venture profit payments were
made by the Company to this English corporation in the amounts of
$257,000 and $770,000 for the fiscal years ended September 30, 1993
and 1994, respectively. This agreement was scheduled to terminate on
October 1, 1995. The Company had given notice that it would not renew
this agreement beyond October 1, 1995. Subsequently, on December 31,
1994 the Company, through MG, Ltd., entered into the transaction
described in the first paragraph of Note 11. This transaction
terminates the earlier agreement, effective December 31, 1994.
F-26
95
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 11 SUBSEQUENT EVENTS
On December 31, 1994, Miracle-Gro Limited entered into an agreement to
exchange its equipment and a license for distribution of Miracle-Gro
products in certain areas of Europe for a 32.5% equity interest in a
garden products company. Miracle-Gro Limited was granted an option to
acquire the remaining 67.5% interest in this company within a three
year period. The initial period of the license is five years and may
be extended up to twenty years from January 1, 1995, depending on the
circumstances defined in the license agreement. Miracle-Gro Products
Limited is entitled to annual royalties for the first five years of
the license.
On January 26, 1995, the Company entered into an agreement with The
Scotts Company (Scotts) whereby Scotts will purchase all the
outstanding stock of the Company in exchange for $195,000,000
convertible preferred stock and 3,000,000 common stock warrants of
Scotts. Such securities are being registered on this Form S-4 in
connection with this transaction. The preferred stock will have a
dividend yield of 5.0% and will be convertible to common shares of
Scotts at $19.00 per share. Each of the common stock warrants gives
the holder the right to purchase one common share of Scotts. The
warrants are exercisable 1,000,000 warrants at $21.00 per share,
1,000,000 warrants at $25.00 per share and 1,000,000 warrants at
$29.00 per share. Accordingly, the estimated purchase price will be
approximately $200,000,000. The transaction requires the approval of
the Scotts shareholders.
F-27
96
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
(Unaudited)
December 31, December 31, September 30,
1993 1994 1994
------------ ------------ ------------
ASSETS
Current assets
Cash and equivalents $ 1,352,675 $ 0 $16,403,197
Accounts receivable, net 13,383,557 15,276,721 3,344,878
Inventories 19,233,461 28,429,448 16,796,721
Other current assets 269,574 424,678 373,080
----------- ----------- -----------
Total current assets 34,239,267 44,130,847 36,917,876
----------- ----------- -----------
Property and equipment, net 1,422,155 1,218,950 1,777,707
Other assets 212,950 702,216 139,085
----------- ----------- -----------
Total Assets $35,874,372 $46,052,013 $38,834,668
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit line $11,055,000 $16,931,000 $ 0
Accounts payable 3,133,403 6,438,087 1,103,347
Other current liabilities 632,412 644,431 3,636,278
Due to United Kingdom distributor 285,932 783,851 780,657
Accrued taxes 503,752 588,426 703,789
----------- ----------- -----------
Total current liabilities 15,610,499 25,385,795 6,224,071
Long-term debt 3,500,000 3,500,000 3,500,000
------------ ----------- -----------
Total liabilities 19,110,499 28,885,795 9,724,071
------------ ----------- -----------
Stockholders' equity
Capital stock 8,456,106 9,456,006 9,456,006
Paid in capital 240,000 240,000 240,000
Retained earnings 8,068,061 7,470,506 19,414,885
Treasury stock (294) (294) (294)
----------- ----------- -----------
Total stockholders' equity 16,763,873 17,166,218 29,110,597
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $35,874,372 $46,052,013 $38,834,668
=========== =========== ===========
See Notes to Combined Financial Statements
F-28
97
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
(Unaudited)
Three Months Ended December 31,
--------------------------------
1993 1994
----------- -----------
Net sales $14,078,419 $15,254,564
Cost of sales 7,024,720 7,702,435
----------- -----------
Gross profit 7,053,699 7,552,129
----------- -----------
Advertising expenses 1,309,807 1,521,469
Selling expenses 204,994 227,489
General and administrative expenses 1,591,251 2,240,898
Other expense (income), net 269,952 818,074
----------- -----------
Operating expenses 3,376,004 4,807,930
----------- -----------
Operating profit 3,677,695 2,744,199
Interest expense (income), net (774) 2,656
----------- -----------
Income before taxes 3,678,469 2,741,543
Provision for state income taxes 120,000 148,753
----------- -----------
Net income 3,558,469 2,592,790
Retained earnings - October 1, 13,477,845 19,414,885
Distributions to shareholders 8,968,253 14,537,169
----------- -----------
Retained earnings - December 31, $ 8,068,061 $ 7,470,506
=========== ===========
See Notes to Combined Financial Statements
F-29
98
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
---------------------------------
1993 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,558,469 $ 2,592,790
Adjustments to reconcile net loss to net cash provided
by operations
Depreciation and amortization 52,803 108,035
Net change in components of working capital (15,806,085) (21,385,444)
Other (49,211) 788
------------ ------------
Net cash used in operating activities (12,244,024) (18,683,831)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in fixed assets (236,675) (113,197)
------------ ------------
Net cash used in investing activities (236,675) (113,197)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 11,055,000 16,931,000
Distributions to shareholders (8,968,253) (14,537,169)
------------ ------------
Net cash provided by financing activities 2,086,747 2,393,831
------------ ------------
Net increase (decrease) in cash and equivalents (10,393,952) (16,403,197)
Cash and equivalents at beginning of period 11,746,627 16,403,197
------------ ------------
Cash and equivalents at end of period $ 1,352,675 $ 0
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 63,414 $ 81,145
Income taxes paid 33,448 1,539
See Notes to Combined Financial Statements
F-30
99
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Three Months Ended December 31, 1994
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined quarterly financial statements include the
accounts of Stern's Miracle-Gro Products, Inc. ("MG, Inc."), Miracle-Gro
Products Limited ("MG Ltd"), Miracle-Gro Lawn Products, Inc. ("Lawn
Products") and Stern's Nurseries, Inc. ("Stern's"), collectively "the
Company" or "Miracle-Gro". The Company is engaged in the marketing and
distribution of plant foods and lawn and garden products primarily in
the United States, Canada and through MG Ltd. in the United Kingdom. The
Company's business is highly seasonal with approximately 80% of sales
occurring in its second and third fiscal quarters.
The combined financial statements are presented to reflect the combined
financial position and results of operations of the companies to be
acquired pursuant to the transaction described in Note 5. Each of the
above companies is controlled by the same group of shareholders,
directly or indirectly. Accordingly, the assets, liabilities and
stockholders' equity of the individual entities have been combined. All
material intercompany transactions and balances have been eliminated in
combination. Another company similarly controlled, Necessary Organics,
Inc., has not been included in the presentation as it is not part
of the group of companies to be acquired.
The consolidated balance sheets as of December 31, 1993 and 1994, the
related combined statements of income and retained earnings, and cash
flows for the three months then ended are unaudited; however, in the
opinion of Miracle-Gro's management, such financial statements contain
all adjustments necessary for the fair presentation of the Company's
financial position and results of operations. Interim results reflect
all normal recurring adjustments and are not necessarily indicative of
results for a full year. The interim financial statements and notes are
presented as specified by Regulation S-X of the Securities Exchange Act
of 1934, and should be read in conjunction with the financial statements
and the accompanying notes in the Company's fiscal 1994 annual
financial statements included elsewhere herein.
NOTE 2 INVENTORIES
Inventories consist of the following:
December 31 December 31 September 30
1993 1994 1994
----------- ----------- ------------
Raw materials $ 5,867,487 $ 7,913,418 $ 6,216,998
Finished goods 13,365,974 20,516,030 10,579,723
----------- ----------- -----------
$19,233,461 $28,429,448 $16,796,721
=========== =========== ===========
F-31
100
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Three Months Ended December 31, 1994
NOTE 3 INCOME TAXES
Each of the affiliated companies in the combined financial statements
(except for Stern's) has elected to be treated as a Subchapter S
Corporation under the Internal Revenue Code. Therefore, federal and
most state income taxes are paid by their stockholders. As a result,
the combined financial statements include only those state and local
income taxes payable directly by the affiliated companies.
Had the affiliated companies been C Corporations, additional
provisions for income taxes of $1,263,104 and $882,067 would have been
incurred in the three months ended December 31, 1993 and 1994,
respectively.
As the entities are not taxable under the Internal Revenue Code, no
deferred taxes have been provided in the combined financial
statements.
NOTE 4 SIGNIFICANT TRANSACTIONS
On December 31, 1994, MG Ltd entered into an agreement to exchange its
equipment and a license for distribution of Miracle-Gro products in
certain areas of Europe for a 32.5% equity interest in a U.K. based
garden products company. The initial period of the license is five
years and may be extended up to twenty years from January 1, 1995,
depending on the circumstances defined in the license agreement. MG
Ltd is entitled to annual royalties for the first five years of the
license.
The exchange is being accounted for at historical cost, with MG Ltd's
investment being equal to the book value of its assets contributed to
the new company. The investment will be accounted for on the equity
method, with MG Ltd recognizing its proportionate share of the new
company's net income and/or losses, as well as royalty income.
NOTE 5 SUBSEQUENT EVENTS
On January 26, 1995, the Company entered into a merger agreement with
The Scotts Company ("Scotts") whereby Scotts will acquire all the
outstanding stock of Miracle-Gro in exchange for $195,000,000 face
amount convertible preferred stock and warrants to purchase 3,000,000
common shares of Scotts. Such securities are being registered on this
Form S-4 in connection with this transaction. The preferred stock
will have a dividend yield of 5.0% per annum and will be convertible
into Scotts common stock at $19.00 per share. The warrants are
exercisable for eight one-half years in the aggregate for 1,000,000
common shares at $21.00 per share, 1,000,000 common shares at $25.00
per share and 1,000,000 common shares at $29.00 per share. The total
purchase price is based on the fair value of the convertible preferred
stock and warrants as of closing and is estimated to be approximately
$200,000,000. The transaction requires approval of the Scotts
shareholders.
F-32
101
APPENDIX I
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
dated as of
January 26, 1995
among
STERN'S MIRACLE-GRO PRODUCTS, INC.
STERN'S NURSERIES, INC.
MIRACLE-GRO LAWN PRODUCTS INC.
MIRACLE-GRO PRODUCTS LIMITED
(the "Miracle-Gro Constituent Companies")
HORACE HAGEDORN
JAMES HAGEDORN
KATHERINE HAGEDORN LITTLEFIELD
PAUL HAGEDORN
PETER HAGEDORN
ROBERT HAGEDORN
SUSAN HAGEDORN
JOHN KENLON
(the "Shareholders")
THE SCOTTS COMPANY
("Scotts")
and
ZYX CORPORATION
("Merger Subsidiary")
102
TABLE OF CONTENTS
Page
----
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
THE MERGER TRANSACTIONS
SECTION 1.01. The Merger Transactions; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Effect of the Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.05. Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.06 Nurseries Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. Reincorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.02. Articles of Incorporation; Code of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.03. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MIRACLE-GRO CONSTITUENT COMPANIES AND THE SHAREHOLDERS
SECTION 3.01. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.02. Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.03. Corporate Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.04. Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.05. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.06. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.07. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.08. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.09. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10. No Undisclosed Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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3.13. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14. Trademarks, Patents and Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.15. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.16. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.17. Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.18. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.19. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SCOTTS AND MERGER SUBSIDIARY
SECTION 4.01. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.02. Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.03. Corporate Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.04. Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.05. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.06. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.07. SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.08. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.09. No Undisclosed Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13. Trademarks, Patents and Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.14. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.15. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.16. Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.17. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.18. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
COVENANTS OF THE MIRACLE-GRO CONSTITUENT
COMPANIES AND THE SHAREHOLDERS
SECTION 5.01. Conduct of the Business of the Miracle-Gro Constituent Companies . . . . . . . . . . . . . . . . . 29
5.02. Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.03. Other Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ii
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Page
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5.04. Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.05. Certain Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI
STANDSTILL AND VOTING PROVISIONS;
RESTRICTIONS ON TRANSFER
SECTION 6.01. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.02. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.03. Rule 145 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.04. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.05. Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.06. Standstill Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.07. Additional Standstill Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.08. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.09. Restrictions on Transfers of Voting Stock and Warrants . . . . . . . . . . . . . . . . . . . . . . . 37
6.10. Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII
COVENANTS OF SCOTTS AND MERGER SUBSIDIARY
SECTION 7.01. Conduct of the Business of Scotts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.02. Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.03. Obligations of Merger Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.04. Other Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.05. Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.06. Proxy Statement and Shareholder Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.07. Director and Officer Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.08. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.09. Employee Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VIII
COVENANTS OF SCOTTS, THE MIRACLE-GRO
CONSTITUENT COMPANIES AND THE SHAREHOLDERS
SECTION 8.01. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.02. Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.03. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
iii
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Page
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8.04. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.05. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.06. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.07. Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.02. Conditions to the Obligations of Scotts and Merger Subsidiary . . . . . . . . . . . . . . . . . . . . 47
9.03. Conditions to the Obligations of the Miracle-Gro Constituent Companies and the Shareholders . . . . . 48
ARTICLE X
TERMINATION
SECTION 10.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XI
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.03. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.02. Amendments; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.03. Expenses; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.04. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.06. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
iv
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12.07. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.09. Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Schedule 1.04 - Merger Consideration Allocation
Schedule 2.03 - Officers of the Surviving Corporation and New Miracle Gro
Annex A - Terms of Class A Convertible Preferred Stock
Annex B - Terms of Series A Warrant
Annex C - Terms of Series B Warrant
Annex D - Terms of Series C Warrant
Annex E - Registration Rights
Annex F - Form of Employment Agreement of Horace Hagedorn, John Kenlon and James Hagedorn
Annex G - Proposed Amendments to Scotts Articles of Incorporation and Code of Regulations
Annex H - Form of Skadden, Arps, Slate, Meagher & Flom Opinion
v
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INDEX OF DEFINED TERMS
1
1994 Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
A
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 32
Applicable Corporate Statutes . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
B
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . 30
Company Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 9
Company Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 6
Company Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Company Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 3
Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CS First Boston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
D
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
E
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
G
group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
H
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
I
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 14
vi
108
L
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
M
Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miracle-Gro Constituent Companies . . . . . . . . . . . . . . . . . . . . . . . 1
Miracle-Gro Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Miracle-Gro Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Miracle-Gro UK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
N
New Jersey Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
New Miracle-Gro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
New York Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Notes Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Nurseries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
O
Ohio Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
P
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Permitted Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Plan Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Polluting Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
R
Reincorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S
Scotts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Scotts Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Scotts Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Scotts Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Scotts Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Scotts Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Scotts Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Scotts Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Scotts Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . 26
Scotts Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . 18
vii
109
Scotts Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Scotts Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Scotts Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Scotts Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Scotts Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Scotts Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Scotts Shareholder Consent . . . . . . . . . . . . . . . . . . . . . . . . . 19
Scotts Shareholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 42
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Series A Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Series B Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Series C Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Shareholder Representative . . . . . . . . . . . . . . . . . . . . . . . . . 33
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Smith Barney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Standstill Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Straddle Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Subsequent Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
T
Target Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Total Voting Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Transfer Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Transfer Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
V
Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Voting Stock Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 33
W
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
viii
110
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of January 24, 1995, among
STERN'S MIRACLE-GRO PRODUCTS INC., a New Jersey corporation (the "Company"),
STERN'S NURSERIES, INC., a New York corporation ("Nurseries"), MIRACLE-GRO LAWN
PRODUCTS INC., a Delaware corporation ("Miracle-Gro Delaware"), MIRACLE-GRO
PRODUCTS LIMITED, a New York corporation ("Miracle-Gro UK", and collectively
with the Company, Nurseries, Miracle-Gro Delaware and Miracle-Gro UK, the
"Miracle-Gro Constituent Companies"), the shareholders of the Miracle-Gro
Constituent Companies as listed on the signature pages hereof (the
"Shareholders"), The Scotts Company, an Ohio corporation ("Scotts"), and ZYX
CORPORATION, an Ohio corporation and a direct, wholly-owned subsidiary of
Scotts ("Merger Subsidiary").
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Ohio (the "Ohio Law"), the Business Corporation Act of the State of New Jersey
(the "New Jersey Law"), the Business Corporation Law of the State of New York
(the "New York Law") and the General Corporation Law of the State of Delaware
(the "Delaware Law," and, collectively with the Ohio Law, the New Jersey Law
and the New York Law, the "Applicable Corporate Statutes"), the Miracle-Gro
Constituent Companies and Scotts have agreed to effectuate a business
combination transaction pursuant to which Merger Subsidiary will merge with and
into the Company (the "Merger"), and, immediately subsequent to the Merger,
Nurseries shall transfer substantially all of its assets, including but not
limited to all intellectual property rights to the Company (the "Asset
Transfer") and Miracle-Gro Delaware and Miracle-Gro UK will merge with and into
the Company (collectively, the "Subsequent Mergers" and, together with the
Merger and the Asset Transfer, the "Merger Transactions"); and
WHEREAS, the respective Boards of Directors of each of the Miracle-Gro
Constituent Companies, Scotts and Merger Subsidiary have determined that the
Merger Transactions are fair to and in the best interests of their respective
companies and shareholders and have approved and adopted this Agreement and
have approved the Merger Transactions and the other transactions contemplated
hereby and recommended approval and adoption of this Agreement and approval of
the Merger Transactions by their respective shareholders; and
WHEREAS, for federal income tax purposes, it is intended that each of
the Merger Transactions qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
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ARTICLE I
THE MERGER TRANSACTIONS
SECTION 1.01. The Merger Transactions; Effective Time. (a) Upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the Applicable Corporate Statutes, as soon as practicable after
the satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger Transactions set forth in Article IX, (i) Merger
Subsidiary shall be merged with and into the Company, in accordance with Ohio
Law and New Jersey Law, whereupon the separate existence of Merger Subsidiary
shall cease and the Company shall be the surviving corporation, and (ii)
immediately subsequent thereto, (x) Nurseries shall transfer substantially all
of its assets, including but not limited to all intellectual property rights,
but excluding its liabilities, to the Company and (y) Miracle-Gro Delaware and
Miracle-Gro UK will separately merge with and into the Company, whereupon the
separate existence of Miracle-Gro Delaware and Miracle-Gro UK shall cease, and
the Company shall be the surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger Transactions set
forth in Article IX, the Miracle-Gro Constituent Companies and Merger
Subsidiary will file certificates of merger with the Secretaries of State of
the States of New Jersey, Ohio, New York and Delaware, in such forms as
required by and executed in accordance with the provisions of, and shall make
all other filings or recordings required by the applicable corporate statutes
in connection with the Merger Transactions. The Merger and each of the
Subsequent Mergers shall become effective at such time as the applicable
certificate of merger is duly filed with the Secretary of State of the
applicable states or at such later time as is specified in such certificates of
merger (the last such effective time being the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises and be subject
to all of the restrictions, disabilities and duties of the Company, Miracle-Gro
Delaware, Miracle-Gro UK and Merger Subsidiary, all as provided under the
Applicable Corporate Statutes.
SECTION 1.02. Closing. Unless this Agreement shall have been
terminated and abandoned pursuant to Section 10.01 and subject to the
satisfaction or, to the extent permitted hereunder, waiver of the conditions
set forth in Article IX, the consummation of the Merger Transactions will take
place as promptly as practicable (and in any event within two business days)
after satisfaction or waiver of the conditions set forth in Article IX, at the
offices of Vorys, Sater, Seymour and Pease, 52 East Gay Street, Columbus, Ohio,
unless another date or place is agreed to in writing by the Company and Scotts.
SECTION 1.03. Effect of the Merger Transactions. At the Effective
Time, the effect of the Merger Transactions shall be as provided in the
Applicable Corporate Statutes. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as
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otherwise provided herein, all the property, rights, privileges, powers and
franchises of the Miracle-Gro Constituent Companies and Merger Subsidiary shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company, Miracle-Gro Delaware, Miracle-Gro UK and Merger Subsidiary shall
become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04. Conversion of Securities.
(a) At the effective time of the Merger, by virtue of the Merger and
without any action on the part of the Company or any of the Shareholders, all
issued and outstanding shares of capital stock of the Company immediately prior
to the effective time of the Merger shall be converted into that number of
shares of Class A Convertible Preferred Stock of Scotts set forth in Schedule
1.04(a) having the terms set forth in Annex A attached hereto (the "Convertible
Preferred Stock"), that number of Series A warrants of Scotts set forth in
Schedule 1.04(a) having the terms set forth in Annex B hereto (the "Series A
Warrants"), that number of Series B warrants of Scotts set forth in Schedule
1.04(a) having the terms set forth in Annex C hereto (the "Series B Warrants"),
and that number of Series C warrants of Scotts set forth in Schedule 1.04(a)
having the terms set forth in Annex D hereto (the "Series C Warrants" and,
collectively with the Series A Warrants and the Series B Warrants, the
"Warrants"), and such Convertible Preferred Stock, Series A Warrants, Series B
Warrants and Series C Warrants (collectively, the "Merger Consideration") shall
be legally and beneficially owned by the Shareholders as set forth in Schedule
1.04(a). The holders of such certificates previously evidencing shares of
capital stock of the Company outstanding prior to the effective time of the
Merger shall cease to have any rights with respect to such shares of capital
stock except as otherwise provided herein or by applicable law.
(b) At the effective time of the merger of Miracle-Gro Delaware with
and into the Company, by virtue of the merger of Miracle-Gro Delaware with and
into the Company and without any action on the part of the Company, Miracle-Gro
Delaware or any of the Shareholders, all issued and outstanding shares of
capital stock of Miracle-Gro Delaware immediately prior to the effective time
of such Subsequent Merger shall be converted into that number of shares of
Convertible Preferred Stock and Warrants set forth in Schedule 1.04(a), and
such Merger Consideration shall be legally and beneficially owned by the
Shareholders as set forth in Schedule 1.04(b). The holders of such certificates
previously evidencing shares of capital stock of Miracle-Gro Delaware
outstanding prior to the effective time of the Merger shall cease to have any
rights with respect to such shares of capital stock except as otherwise
provided herein or by applicable law.
(c) At the effective time of the merger of Miracle-Gro UK with and
into the Company, by virtue of the merger of Miracle-Gro UK with and into the
Company and without any action on the part of the Company, Miracle-Gro UK or
any of the Shareholders, all issued and outstanding shares of capital stock of
Miracle-Gro UK immediately prior to the effective time of such Subsequent
Merger shall be converted into that number of shares of Convertible Preferred
Stock and Warrants set forth in Schedule 1.04(c), and such Merger Consideration
shall
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be legally and beneficially owned by the Shareholders as set forth in Schedule
1.04(c). The holders of such certificates previously evidencing shares of
capital stock of Miracle-Gro Delaware outstanding prior to the effective time
of the Merger shall cease to have any rights with respect to such shares of
capital stock except as otherwise provided herein or by applicable law.
(d) At the effective time of the Asset Transfer and in consideration
therefor, Nurseries shall receive that number of shares of Convertible
Preferred Stock set forth in Schedule 1.04(d), and such Merger Consideration
shall be legally and beneficially owned by Nurseries as set forth Schedule
1.04(d).
(e) Each share of capital stock held by any Miracle-Gro Constituent
Company as treasury stock immediately prior to the Effective Time shall
automatically be cancelled and extinguished without any conversion thereof, and
no payment shall be made with respect thereto.
(f) Each share capital stock of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and non-assessable common share, without par value, of
the Surviving Corporation with the same rights, powers and privileges as the
shares so converted and shall constitute the only outstanding shares of capital
stock of the Surviving Corporation.
(g) Notwithstanding the foregoing, the aggregate amount of Merger
Consideration shall consist of (i) 195,000 shares representing $195 million
face amount of Convertible Preferred Stock; (ii) Series A Warrants to purchase
1,000,000 common shares, without par value, of Scotts (the "Scotts Common
Stock"); (iii) Series B Warrants to purchase 1,000,000 shares of Scotts Common
Stock and (iv) Series C Warrants to purchase 1,000,000 shares of Scotts Common
Stock.
SECTION 1.05. Surrender. (a) At the Effective Time, the holders of
shares of capital stock of the Company, Miracle-Gro Delaware and Miracle-Gro UK
outstanding immediately prior to the Effective Time shall be entitled to
receive the Merger Consideration set forth opposite their names in Schedule
1.04(a), Schedule 1.04(b) and Schedule 1.04(c) upon surrender to Scotts of all
certificates which formerly represented all outstanding shares of capital stock
of the Company, Miracle-Gro Delaware and Miracle-Gro UK. At the Effective Time
Nurseries shall be entitled to receive the Merger Consideration set forth in
Schedule 1.04(d).
(b) After the Effective Time, the stock transfer books of the
Miracle-Gro Constituent Companies shall be closed, and there shall be no
further registration of transfers of shares of capital stock of any of the
Miracle-Gro Constituent Companies on the records of any of the Miracle-Gro
Constituent Companies. If, after the Effective Time, certificates representing
shares of capital stock of any of the Miracle-Gro Constituent Companies are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration provided for, and in accordance with the
procedures set forth, in this Article I.
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(c) No dividends or other distributions declared or made after the
Effective Time which have a record date after the Effective Time shall be paid
to the holder of any unsurrendered certificates representing shares of capital
stock of any Miracle-Gro Constituent Company with respect to the shares of
Convertible Preferred Stock they are entitled to receive until such
certificates shall have been surrendered to the Surviving Corporation.
SECTION 1.06. Nurseries Liquidation. Promptly following the
Effective Time, Nurseries shall liquidate in accordance with New York Law.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. Reincorporation. Immediately after the Effective Time,
the Surviving Corporation shall be merged with and into a newly-formed,
wholly-owned subsidiary of the Surviving Corporation which shall be an Ohio
corporation ("New Miracle-Gro")(the "Reincorporation"). The effect of the
Reincorporation shall be as provided under Ohio Law and New Jersey Law. Without
limiting the generality of the foregoing, and subject thereto, at the effective
time of the Reincorporation, all the property, rights, privileges, powers and
franchises of the Surviving Corporation shall vest in New Miracle-Gro, and all
debts, liabilities and duties of the Surviving Corporation shall become the
debts, liabilities and duties of New Miracle-Gro. It is intended that the
Reincorporation qualify as a reorganization under the provisions of Section
368(a)(1)(F) of the Code.
SECTION 2.02. Articles of Incorporation; Code of Regulations. (a)
At the effective time of the Merger, the Certificate of Incorporation and the
By-laws of the Company, as in effect immediately prior to such effective time,
shall be the Certificate of Incorporation and the By-laws of the Surviving
Corporation.
(b) At the effective time of the Subsequent Mergers, the Certificate
of Incorporation and the By-laws of the Company, as in effect immediately prior
to such effective time, shall be the Certificate of Incorporation and the
By-laws of the Surviving Corporation.
(c) At the effective time of the Reincorporation, the Articles of
Incorporation and the Code of Regulations of New Miracle-Gro, as in effect
immediately prior to such effective time, shall be the Articles of
Incorporation and the Code of Regulations of New Miracle-Gro, except that the
name of New Miracle-Gro shall be changed to "Scotts' Miracle-Gro Products,
Inc."
SECTION 2.03. Directors and Officers. From and after the respective
effective times of the Merger, the Subsequent Mergers and the Reincorporation,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of New Miracle-Gro at the Effective Time
shall be the directors of the Surviving Corporation and New
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Miracle-Gro, respectively, and (ii) the officers of the Surviving Corporation
and New Miracle-Gro shall be the officers set forth on Schedule 2.03.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MIRACLE-GRO CONSTITUENT COMPANIES AND THE SHAREHOLDERS
Each of the Miracle-Gro Constituent Companies and the Shareholders,
jointly and severally, represent and warrant to Scotts and Merger Subsidiary
that:
SECTION 3.01. Corporate Existence and Power. Each of the Miracle-Gro
Constituent Companies is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to own, lease and operate its
properties and to carry on its business as now conducted or as heretofore
conducted by the Miracle-Gro Constituent Companies, except to the extent the
failure to have such powers, licenses, authorizations, consents or approvals
would not, individually or in the aggregate, have a material adverse effect on
the business, assets, results of operations or condition (financial or
otherwise) of the Miracle-Gro Constituent Companies, taken as a whole (a
"Company Material Adverse Effect"). Each of the Miracle-Gro Constituent
Companies is duly qualified or licensed to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the character
of the property owned or leased by it or the nature of its activities makes
such qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed and in good standing would not,
individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.02. Organizational Documents. Each of the Miracle-Gro
Constituent Companies has heretofore delivered to Scotts true and complete
copies of the certificate of incorporation and by-laws, or equivalent
organizational documents, of such Miracle-Gro Constituent Company, in each
case as currently in effect. None of the Miracle-Gro Constituent Companies is
in violation of any provision of its certificate of incorporation, by-laws or
equivalent organizational documents, except for such violations that would not,
individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.03. Corporate Authorization. The execution, delivery and
performance by the Miracle-Gro Constituent Companies of this Agreement and the
consummation by the Miracle-Gro Constituent Companies of the transactions
contemplated hereby are within the corporate powers of each of the Miracle-Gro
Constituent Companies and have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and binding agreement of each of
the Miracle-Gro Constituent Companies. The Merger, the Subsequent Mergers and
the Asset Transfer, respectively, have been approved by the unanimous vote of
all of the outstanding capital shares of each of the respective Miracle-Gro
Constituent Companies.
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SECTION 3.04. Governmental Authorization. The execution, delivery
and performance by the Miracle-Gro Constituent Companies and the Shareholders
of this Agreement and the consummation of the transactions contemplated by the
Agreement by the Miracle-Gro Constituent Companies require no consent,
approval, authorization or permit of, or filing with or notification to any
governmental or regulatory authority, except (A) for (i) the filing of
certificates of merger and/or other appropriate merger documents in accordance
with New Jersey Law and Ohio Law; (ii) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"); (iii)
compliance with any applicable provisions of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), state securities or "blue sky" laws and state takeover laws; (iv)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"); and (v) any applicable requirements of non-United States competition,
antitrust and investment laws and (B) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay the consummation of the Merger or otherwise prevent
any Miracle-Gro Constituent Company from performing its obligations under this
Agreement, and would not, individually or in the aggregate, have a Company
Material Adverse Effect.
SECTION 3.05. Non-Contravention. The execution, delivery and
performance by the Miracle-Gro Constituent Companies and the Shareholders of
this Agreement and the consummation by the Miracle-Gro Constituent Companies
and the Shareholders of the transactions contemplated hereby do not and will
not (i) contravene or conflict with the certificate of incorporation, by-laws
or equivalent organizational documents of any Miracle-Gro Constituent Company;
(ii) assuming compliance with the matters referred to in Section 3.04,
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, injunction, order or decree binding upon or
applicable to any Miracle-Gro Constituent Company or any Shareholder; (iii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of any Miracle-Gro Constituent
Company or to a loss of any benefit to which any Miracle-Gro Constituent
Company is entitled under any provision of any agreement, contract or other
instrument binding upon any Miracle-Gro Constituent Company or any license,
franchise, permit or other similar authorization held by any Miracle-Gro
Constituent Company; or (iv) result in the creation or imposition of any Lien
on any asset of any Miracle-Gro Constituent Company, except, in the case of
clauses (ii), (iii) and (iv), for any such conflicts, violations, defaults,
breaches or other occurrences which would not prevent or delay consummation of
the Merger, or otherwise prevent any Miracle-Gro Constituent Company from
performing its obligations under this Agreement, and would not, individually or
in the aggregate, have a Company Material Adverse Effect. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 3.06. Capitalization. (a) The authorized capital stock of
the Company consists of 20,000 shares of Voting Common Stock, without par
value, and 20,000 shares of
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Non-Voting Common Stock, without par value. As of the date hereof there are,
and as of the Effective Time there will be, outstanding 13,405 shares of Voting
Common Stock and 13,405.284 shares of Non-Voting Common Stock. All outstanding
shares of capital stock of the Company have been, and at the Effective Time
will be, duly authorized and validly issued and are, and at the Effective Time
will be, fully paid and nonassessable.
(b) The authorized capital stock of Miracle-Gro Delaware consists of
1,500 shares of Voting Common Stock, without par value, and 1,500 shares of
Non-Voting Common Stock, without par value. As of the date hereof there are,
and as of the Effective Time there will be, outstanding 1,000 shares of Voting
Common Stock and 999.8 shares of Non-Voting Common Stock. All outstanding
shares of capital stock of Miracle-Gro Delaware have been, and at the Effective
Time will be, duly authorized and validly issued and are, and at the Effective
Time will be, fully paid and nonassessable.
(c) The authorized capital stock of Miracle-Gro UK consists of 20,000
shares of Voting Common Stock, without par value, and 20,000 shares of
Non-Voting Common Stock, without par value. As of the date hereof there are,
and as of the Effective Time there will be, outstanding 4,997.274 shares of
Voting Common Stock and 4,997.106 shares of Non-Voting Common Stock. All
outstanding shares of capital stock of Miracle-Gro UK have been, and at the
Effective Time will be, duly authorized and validly issued and are, and at the
Effective Time will be, fully paid and nonassessable.
(d) Except as set forth in this Section, there are, and at the
Effective Time will be, outstanding (i) no shares of capital stock or other
voting securities of any of the Miracle-Gro Constituent Companies, (ii) no
securities of any of the Miracle-Gro Constituent Companies convertible into or
exchangeable for shares of capital stock or voting securities of any of the
Miracle-Gro Constituent Companies, and (iii) no options or other rights to
acquire from any of the Miracle-Gro Constituent Companies, and no obligation of
any of the Miracle-Gro Constituent Companies to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of any of the Miracle-Gro Constituent Companies (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Company Securities"). There are, and at the Effective Time will be, no
outstanding obligations of any of the Miracle-Gro Constituent Companies, to
repurchase, redeem or otherwise acquire any Company Securities or make any
material investment in any other Person. None of the Miracle-Gro Constituent
Companies has, or at the Effective Time will have, any Subsidiaries.
"Subsidiary" means with respect to any of the Miracle-Gro Constituent
Companies, any corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are directly
or indirectly owned by any of the Miracle-Gro Constituent Companies.
SECTION 3.07. Financial Statements. The audited combined financial
statements of the Miracle-Gro Constituent Companies as of September 30, 1993
and 1994 and for the three fiscal years ended September 30, 1994, which have
previously been provided to Scotts fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis
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(except as may be indicated in the notes thereto), the combined financial
position of the Miracle-Gro Constituent Companies as of the dates thereof and
their combined results of operations and changes in financial position for the
periods then ended (subject to normal and recurring year-end adjustments in the
case of any unaudited interim financial statements which were not, and are not
expected, individually or in the aggregate, to be, material in amount). For
purposes of this Agreement, "Balance Sheet" means the combined balance sheet of
the Miracle-Gro Constituent Companies as of September 30, 1994 and "Balance
Sheet Date" means September 30, 1994.
SECTION 3.08. Disclosure Documents. The information with respect to
the Miracle-Gro Constituent Companies that the Company furnishes to Scotts in
writing specifically for use in Scotts' proxy or information statement
(together with any amendments thereof, or supplements thereto, the "Scotts
Proxy Statement") to be filed with the Securities and Exchange Commission (the
"SEC") in connection with the Merger Transactions will not, at the time of the
filing of such Scotts Proxy Statement or at the time it is first mailed to the
shareholders of Scotts, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
SECTION 3.09. Absence of Certain Changes. Since the Balance Sheet
Date and except as disclosed to Scotts in Section 3.09 of the disclosure
schedule previously delivered to Scotts by the Company (the "Company Disclosure
Schedule"), the Miracle-Gro Constituent Companies have conducted their business
only in the ordinary course consistent with past practice and there has not
been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had or reasonably could be expected
to have a Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
any of the Miracle-Gro Constituent Companies, or any repurchase,
redemption or other acquisition by any Miracle-Gro Constituent Company
of any outstanding shares of capital stock or other securities of, or
other ownership interests in, any Miracle-Gro Constituent Company;
(c) any amendment of any material term of any outstanding
security of any Miracle-Gro Constituent Company;
(d) any incurrence, assumption or guarantee by any
Miracle-Gro Constituent Company of any indebtedness for borrowed
money;
(e) any creation or assumption by any Miracle-Gro Constituent
Company of any Lien on any material asset other than in the ordinary
course of business consistent with past practices;
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(f) any making of any loan, advance or capital contribution
to or investment in any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof (each, a "Person"), other than loans, advances
or capital contributions to or investments in any Miracle-Gro
Constituent Company made in the ordinary course of business consistent
with past practices;
(g) any transaction or commitment made, or any contract or
agreement entered into, by any Miracle-Gro Constituent Company
relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by any Miracle-Gro
Constituent Company of any contract or other right, in either case,
material to the Miracle-Gro Constituent Companies, taken as a whole,
other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by this
Agreement;
(h) any change in any method of accounting or accounting
practice by any Miracle-Gro Constituent Company, except for any such
change required by reason of a concurrent change in generally accepted
accounting principles;
(i) any (i) grant of any severance or termination pay to any
director, officer, employee or agent of any Miracle- Gro Constituent
Company, (ii) entering into of any employment, deferred compensation
or other similar agreement (or any amendment to any such existing
agreement) with any director, officer, employee or agent of any
Miracle-Gro Constituent Company, (iii) increase in benefits payable
under any existing severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other benefits
payable to directors, officers, employees or agents of any Miracle-Gro
Constituent Company, other than in the ordinary course of business
consistent with past practice or, in the case of employment
agreements, as contemplated by Section 9.02(v); or
(j) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of any Miracle-Gro
Constituent Company, which employees were not subject to a collective
bargaining agreement at the Balance Sheet Date, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees.
SECTION 3.10. No Undisclosed Material Liabilities. Except as and to
the extent set forth in the Balance Sheet or as otherwise set forth in Section
3.10 of the Company Disclosure Schedule, none of the Miracle-Gro Constituent
Companies had any liability or obligation of any nature (whether accrued,
contingent, absolute, determined, determinable or otherwise) that (i) would be
required to be reflected on a combined balance sheet of the Miracle-Gro
Constituent Companies (including the notes thereto) or (ii) would have, or
could reasonably be likely to have, individually or in the aggregate, a Company
Material Adverse Effect.
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SECTION 3.11. Litigation. Except as set forth in Section 3.11 of the
Company Disclosure Schedule, there is no claim, action, suit, investigation or
proceeding pending against or, to the knowledge of the Company or the
Shareholders, threatened against any of the Miracle-Gro Constituent Companies
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official which, individually or in the aggregate,
would reasonably be likely to have a Company Material Adverse Effect or would
reasonably be likely to impair the ability of any Miracle-Gro Constituent
Company to consummate the Merger Transactions or the other transactions
contemplated by this Agreement.
SECTION 3.12. Taxes. Each of the Miracle-Gro Constituent Companies
has timely filed all federal, state, local and foreign income, gross income,
gross receipts, gains, premium, sales, use, ad valorem, transfer, franchise,
profits, withholding, payroll, employment, excise, severance, stamp,
occupation, license, lease, environmental, customs, duties, property, windfall
profits and all other tax returns, statements, reports and forms (the "Tax
Returns") required to be filed with the appropriate tax authority through the
date hereof, the failure of which to file would result in a Company Material
Adverse Effect, and shall timely file all such Tax Returns required to be filed
on or before the Effective Time. To the best knowledge of the Company and the
Shareholders, such Tax Returns are and will be true, correct and complete in
all material respects. Each of the Miracle-Gro Constituent Companies has paid
and discharged all federal, state, local and foreign Taxes due from them, other
than such Taxes that are adequately reserved as shown on the Balance Sheet.
Neither the Internal Revenue Service nor any other taxing agency or authority,
domestic or foreign, is now asserting or, to the best knowledge of the Company
and the Shareholders, threatening to assert against any of the Miracle-Gro
Constituent Companies any material deficiency or claim for additional Taxes.
There are no unexpired waivers by any of the Miracle- Gro Constituent Companies
of any statutes of limitations with respect to Taxes which, individually or in
the aggregate would have a Company Material Adverse Effect. The accruals and
reserves for Taxes reflected in the Balance Sheet are adequate for the periods
covered. Each of the Miracle-Gro Constituent Companies has withheld or
collected and paid over to the appropriate governmental authorities or is
properly holding for such payment all Taxes required by law to be withheld or
collected, except to the extent that the failure to so withhold or collect and
pay would not, individually or in the aggregate, have a Company Material
Adverse Effect. There are no Liens for Taxes upon the assets of any of the
Miracle-Gro Constituent Companies, which, individually or in the aggregate
would have a Company Material Adverse Effect or other than Liens for current
Taxes not yet due and payable. None of the Miracle-Gro Constituent Companies
has agreed to make, or is required to make, any adjustment under Section 481(a)
of the Code. None of the Miracle-Gro Constituent Companies is a party to any
agreement, contract, arrangement or plan that has resulted, or could result,
individually or in the aggregate, in the payment of "excess parachute payments"
within the meaning of Section 280G of the Code. Each of the Miracle-Gro
Constituent Companies, other than Nurseries, is, and at all times since January
1, 1985, has been, an S corporation within the meaning of Section 1361(a)(1) of
the Code (or the corresponding provisions of preceding law) and is not subject
to the tax imposed on certain built-in gains under Section 1374 of the Code or
the tax imposed under Section 1375 of the Code. For purposes of this
Agreement, "Taxes" shall mean all taxes, charges and other assessments,
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including any interest, penalties or additions to tax with respect thereto.
For purposes of this Section 3.12 only, a Company Material Adverse Effect shall
mean a Loss (as hereafter defined) in excess of $500,000.
SECTION 3.13. ERISA. (a) Section 3.13(a) of the Company Disclosure
Schedule includes a list identifying each "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), which (i) is subject to any provision of ERISA and (ii) is
maintained, administered or contributed to by any Miracle-Gro Constituent
Company or any affiliate (as defined below) and covers any employee or former
employee of any Miracle-Gro Constituent Company or any affiliate or under which
any Miracle-Gro Constituent Company or any affiliate has any liability. Copies
of such plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been furnished to Scotts
together with (x) the three most recent annual reports (Form 5500 including, if
applicable, Schedule B thereto) prepared in connection with any such plan and
(y) the most recent actuarial valuation report prepared in connection with any
such plan. Such plans are referred to collectively herein as the "Employee
Plans." For purposes of this Section, "affiliate" of any Person means any
other Person which, together with such Person, would be treated as a single
employer under Section 414 of the Code. The only Employee Plans which
individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA (the "Pension Plans") are identified
as such in the list referred to above. The Company has provided Scotts with
complete age, salary, service and related data as of December 31, 1994 for
employees and former employees of each of the Miracle-Gro Constituent Companies
and any affiliate covered under the Pension Plans.
(b) Except as otherwise identified in Section 3.13(b) of the Company
Disclosure Schedule, no Employee Plan constitutes a "multiemployer plan", as
defined in Section 3(37) of ERISA (a "Multiemployer Plan"), and no Employee
Plan is maintained in connection with any trust described in Section 501(c)(9)
of the Code. The only Employee Plans that are subject to Title IV of ERISA
(the "Retirement Plans") are identified in the list of such Employee Plans
heretofore provided to Scotts by the Company. As of the Balance Sheet Date,
the fair market value of the assets of each Retirement Plan (excluding for
these purposes any accrued but unpaid contributions) exceeded the present value
of all benefits accrued under such Retirement Plan determined on a termination
basis using the assumptions established by the Pension Benefit Guaranty
Corporation (the "PBGC") as in effect on such date. No "accumulated funding
deficiency," as defined in Section 412 of the Code, has been incurred with
respect to any Pension Plan, whether or not waived. The Company and the
Shareholders know of no "reportable event," within the meaning of Section 4043
of ERISA for which the 30-day notice requirement to the PBGC has not been
waived, and no event described in Section 4041, 4042, 4062 or 4063 of ERISA has
occurred in connection with any Employee Plan, other than a "reportable event"
that, individually or in the aggregate, will not have a Company Material
Adverse Effect. No condition exists and no event has occurred that would
constitute grounds for termination of any Retirement Plan or, with respect to
any Employee Plan which is a Multiemployer Plan, presents a material risk of a
complete or partial withdrawal under Title IV of ERISA and neither any
Miracle-Gro Constituent Company nor any of their respective
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affiliates has incurred any material liability under Title IV of ERISA arising
in connection with the termination of, or complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA. If a "complete
withdrawal" by any Miracle-Gro Constituent Company and all of its respective
affiliates were to occur as of the Effective Time with respect to all Employee
Plans which are Multiemployer Plans, neither any Miracle-Gro Constituent
Company nor any such affiliate would incur any material withdrawal liability
under Title IV of ERISA. To the Company's and the Shareholders' knowledge,
nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make any Miracle-Gro
Constituent Company or any officer or director of any Miracle-Gro Constituent
Company subject to any liability under Title I of ERISA or liable for any tax
pursuant to Section 4975 of the Code that could, individually or in the
aggregate, have a Company Material Adverse Effect.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. The Company has
furnished to Scotts copies of the most recent Internal Revenue Service
determination letters with respect to each such Plan. Each Employee Plan has
been maintained in material compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including
but not limited to ERISA and the Code, which are applicable to such Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of any Miracle-Gro Constituent Company or any
affiliate that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Sections
162(a)(1) or 280G of the Code.
(e) Section 3.13(e) of the Company Disclosure Schedule sets forth a
list of each employment, severance or other similar contract, arrangement or
policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an
Employee Plan, (ii) is entered into, maintained or contributed to, as the case
may be, by any of the Miracle-Gro Constituent Companies or any of their
respective affiliates and (iii) covers any employee or former employee of any
of the Miracle-Gro Constituent Companies or any of their respective affiliates.
Such contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished previously to Scotts are
referred to collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Benefit Arrangement.
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(f) The excess of the present value of the projected liability in
respect of post-retirement health and medical benefits for retired employees of
any Miracle-Gro Constituent Companies and their respective affiliates,
determined using assumptions that are reasonable in the aggregate, over the
fair market value of any fund, reserve or other assets segregated for the
purpose of satisfying such liability (including for such purposes any fund
established pursuant to Section 401(h) of the Code) does not in the aggregate
exceed $1,000,000. No condition exists that would prevent any Miracle-Gro
Constituent Company from amending or terminating any Employee Plan or Benefit
Arrangement providing health or medical benefits in respect of any active
employee of any of the Miracle-Gro Constituent Companies other than limitations
imposed under the terms of a collective bargaining agreement.
(g) Except as set forth in Section 3.13(g) of the Company Disclosure
Schedule, no Miracle-Gro Constituent Company is a party to or subject to any
union contract or any employment contract or arrangement providing for annual
future compensation of $50,000 or more with any officer, consultant, director
or employee.
(h) The consummation of the transactions contemplated hereby will not
result in any material acceleration of benefits, or the modification of the
terms of any benefits, payable to or for the benefit of any officer, director
or employee of any Miracle-Gro Constituent Company, including any acceleration
of vesting of stock options or any changes in any amounts or timing of any
amounts payable under any incentive arrangement.
SECTION 3.14. Trademarks, Patents and Copyrights. (a) Section
3.14(a) of the Company Disclosure Schedule sets forth a true and complete list
of (i) all patents, patent rights, trademarks, trademark rights, trade names,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, know-how and other proprietary rights and information used or
held for use in connection with the business of the Miracle-Gro Constituent
Companies (collectively, "Intellectual Property Rights") and (ii) all licenses,
commitments and other agreements to which any Miracle-Gro Constituent Company
is a party providing for the license of any Intellectual Property Rights to or
from any other Person.
(b) Except as set forth in Section 3.14(b) of the Company Disclosure
Schedule, the Miracle-Gro Constituent Companies own or possess adequate
licenses or other rights to use all of the Intellectual Property Rights; there
are no Intellectual Property Rights necessary for use in connection with the
business of the Miracle-Gro Constituent Companies which are not owned or
possessed by the Miracle-Gro Constituent Companies or which, upon completion of
the Merger Transactions, will not be owned or possessed by the Company; and
neither the Company nor the Shareholders is aware of any assertion or claim
challenging the validity of any of the Intellectual Property Rights; and the
conduct of the business of the Miracle-Gro Constituent Companies, to the best
knowledge of the Company and the Shareholders, does not conflict in any way
with any patent, patent right, license, trademark, trademark right, trade name,
trade name right, service mark or copyright of any third party. To the best
knowledge of the Company and the Shareholders, there are no infringements of
any proprietary rights owned by
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or licensed by or to any Miracle-Gro Constituent Company that individually or
in the aggregate would have a Company Material Adverse Effect.
SECTION 3.15. Material Contracts. (a) Except for agreements,
contracts, plans, leases, arrangements or commitments (in each case, oral or
written) set forth in Section 3.15(a) of the Company Disclosure Schedule, no
Miracle-Gro Constituent Company is a party to or subject to:
(i) any lease providing for annual rental payments
of $50,000 or more;
(ii) any contract for the purchase of materials,
supplies, goods, services, equipment or other assets providing
for annual payments by any Miracle-Gro Constituent Company of
$50,000 or more;
(iii) any sales, distribution or other similar
agreement providing for the sale by any Miracle-Gro
Constituent Company of materials, supplies, goods, services,
equipment or other assets that provides for annual payments to
any Miracle-Gro Constituent Company of $100,000 or more;
(iv) any partnership, joint venture or other similar
contract arrangement or agreement;
(v) any contract relating to indebtedness for
borrowed money or the deferred purchase price of property
(whether incurred, assumed, guaranteed or secured by any
asset), except contracts relating to indebtedness incurred in
the ordinary course of business in an amount not exceeding
$25,000;
(vi) any license agreement, franchise agreement or
agreement in respect of similar rights granted to or held by
any Miracle-Gro Constituent Company;
(vii) any agency, dealer, sales representative or
other similar agreement;
(viii) any contract or other document that
substantially limits the ability of any Miracle-Gro
Constituent Company to compete in any line of business or with
any Person or in any area or which would so restrict any of
the Miracle-Gro Constituent Companies after the Effective
Time; or
(ix) any other contract or commitment not made in
the ordinary course of business that is material to the
Company or any other Miracle-Gro Constituent Company.
(b) Each agreement, contract, lease, arrangement and commitment
disclosed in Section 3.15(a) of the Company Disclosure Schedule or required to
be disclosed pursuant to this Section is a valid and binding agreement of such
Miracle-Gro Constituent Company and is in full force
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and effect, and neither any Miracle-Gro Constituent Company nor, to the
knowledge of the Company and the Shareholders, any other party thereto is in
default in any material respect under the terms of any such agreement,
contract, plan, lease arrangement or commitment.
SECTION 3.16. Compliance with Laws. No Miracle-Gro Constituent
Company is in violation of, or has violated, any applicable provisions of any
laws, rules, statutes, ordinances or regulations, except for violations that
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
SECTION 3.17. Finders' Fees. No investment banker, broker, finder or
other intermediary (other than CS First Boston Corporation ("CS First Boston"))
has been retained by, or authorized to act on behalf of, any Miracle-Gro
Constituent Company and entitled to any fee or commission in connection with
the Merger Transactions or the transactions contemplated by this Agreement.
The Company has previously furnished to Scotts a complete and correct copy of
all agreements between CS First Boston and any Miracle-Gro Constituent Company
(or any Shareholder) pursuant to which such firm would be entitled to any
payment relating to the Merger Transactions or the transactions contemplated by
this Agreement.
SECTION 3.18. Other Information. The statements contained in the
documents and certificates furnished or to be furnished by any of the
Miracle-Gro Constituent Companies or the Shareholders pursuant to this
Agreement and in connection with the transactions contemplated by this
Agreement, when considered in their entirety and taking into account all
subsequent corrections, modifications and amplifications of previously
delivered information, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading. Notwithstanding anything herein to the
contrary, none of the Miracle-Gro Constituent Companies nor any Shareholder
makes any representation or warranty regarding any financial projection
relating to the Company and/or the other Miracle-Gro Constituent Companies or
any other indications of future financial performance or results of any
Miracle-Gro Constituent Company.
SECTION 3.19. Environmental Compliance. Except as set forth in
Section 3.19 of the Company Disclosure Schedule:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed, no penalty has
been assessed and no investigation or review is pending, or to the knowledge of
the Company or the Shareholders, after due inquiry, threatened by any
governmental or other entity, and there are no existing orders, decrees or
agreements in effect or, to the knowledge of the Company or the Shareholders,
after due inquiry, threatened, (i) with respect to any alleged material
violation of any Environmental Law (as hereafter defined) in connection with
the conduct of the business of any of the Miracle-Gro Constituent Companies
(for purposes of this Section 3.19, the Miracle-Gro Constituent Companies shall
include any predecessor of any of the Miracle-Gro Constituent Companies) or
(ii) with respect to any alleged failure to have any permit, certificate,
license, approval, registration or authorization required by any Environmental
Law in connection with the conduct
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of the business of the Miracle-Gro Constituent Companies or (iii) with respect
to any generation, treatment, storage, recycling, transportation, disposal or
release (including a release as defined in 42 USC Section 9601) ("Release") of
any polluting material, including petroleum, its derivatives, by-products and
other hydrocarbons ("Polluting Substance").
(b)(i) No Miracle-Gro Constituent Company has, other than as a
generator, handled any Polluting Substance, on any property now or previously
owned or leased by any Miracle-Gro Constituent Company; (ii) no asbestos is
present at any property now or previously owned or leased by any Miracle-Gro
Constituent Company; (iii) there are no underground storage tanks currently in
use or, to the knowledge of the Company or the Shareholders, abandoned at any
property now or previously owned or leased by any Miracle-Gro Constituent
Company which have been used to store or have contained a substance which is
regulated by Environmental Laws or which, if Released into the environment,
would result in pollution, (iv) there has been no Release of a Polluting
Substance with respect to which any of the Miracle-Gro Constituent Companies
may reasonably be required to perform investigation or remediation, other than
routine spills and leaks which are addressed in the ordinary course of
business, at, on or under any property now or previously owned or leased by any
Miracle-Gro Constituent Company and (v) no Hazardous Substance (as defined in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA")) is present in a reportable or threshold planning
quantity, where such a quantity has been established by statute, ordinance,
rule, regulation or order, at, on or under any property now or previously owned
by any Miracle-Gro Constituent Company.
(c) To the knowledge of the Company and the Shareholders, no
Miracle-Gro Constituent Company has transported or arranged for the
transportation (directly or indirectly) of any Hazardous Substance (as defined
in CERCLA) to any location which is listed or proposed for listing on the
nationwide priorities list established under CERCLA or on any similar state
list.
(d) To the knowledge of the Company and the Shareholders, no oral or
written notification of a Release of a Hazardous Substance (as defined in
CERCLA) has been filed by or on behalf of any Miracle-Gro Constituent Company,
and no property now or previously owned or leased by any Miracle-Gro
Constituent Company is listed, or to the knowledge of the Company or the
Shareholders, proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA.
(e) There are no environmental Liens on any asset of any Miracle-Gro
Constituent Company and no government actions have been taken or are in process
which could subject any of such assets to such Liens.
(f) Except as set forth in Section 3.19(f) of the Company Disclosure
Schedule, there have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or which are in the
possession of any of the Miracle-Gro Constituent Companies in relation to any
property or facility now or previously owned or leased by any Miracle-Gro
Constituent Company.
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(g) For purposes of this Agreement, "Environmental Law" means all
applicable Federal, state and local laws, rules and regulations, including
common law, orders decrees, permits and other binding requirements relating to
pollution, the preservation of the environment and Releases of pollutants into
the environment or the workplace.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SCOTTS AND MERGER SUBSIDIARY
Scotts and Merger Subsidiary, jointly and severally, represent and
warrant to the Miracle-Gro Constituent Companies and the Shareholders that:
SECTION 4.01. Corporate Existence and Power. Each of Scotts and
Merger Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to own, lease and operate its
properties and to carry on its business as now conducted except to the extent
the failure to have such powers, licenses, authorizations, consents or
approvals would not, individually or in the aggregate, have a material adverse
effect on the business, assets, results of operations or condition (financial
or otherwise) of Scotts and its consolidated Subsidiaries, taken as a whole (a
"Scotts Material Adverse Effect"). Each of Scotts and Merger Subsidiary is
duly qualified or licensed to do business as a foreign corporation, and is in
good standing, in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed and in good standing would not, individually or in the
aggregate, have a Scotts Material Adverse Effect. Since the date of its
incorporation, Merger Subsidiary has not engaged in any activities other than
in connection with or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions contemplated
hereby.
SECTION 4.02. Organizational Documents. Scotts has heretofore
delivered to the Company true and complete copies of the Articles of
Incorporation and Code of Regulations of Scotts, Merger Subsidiary and New
Miracle-Gro, in each case as currently in effect. Neither Scotts nor Merger
Subsidiary is in violation of any provision of its Articles of Incorporation or
Code of Regulations, except for such violations that would not, individually or
in the aggregate, have a Scotts Material Adverse Effect.
SECTION 4.03. Corporate Authorization. The execution, delivery and
performance by Scotts and Merger Subsidiary of this Agreement and the
consummation by Scotts and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of each of Scotts and Merger Subsidiary
and have been duly authorized by all necessary corporate action (other than the
required approval by Scotts' shareholders of the matters set forth in Sections
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9.01(iii) and (iv) (the "Scotts Shareholder Consent"). This Agreement
constitutes a valid and binding agreement of Scotts and Merger Subsidiary.
SECTION 4.04. Governmental Authorization. The execution, delivery
and performance by Scotts and Merger Subsidiary of this Agreement and the
consummation by Scotts and Merger Subsidiary of the transactions contemplated
by the Agreement require no consent, approval, authorization or permit of, or
filing with or notification to any governmental or regulatory authority, except
(A) for (i) the filing of a certificate of merger and/or other appropriate
merger documents in accordance with New Jersey Law and Ohio Law, (ii)
compliance with any applicable requirements of the HSR Act; (iii) compliance
with any applicable requirements of the Securities Act, state securities or
"blue sky" laws and state takeover laws; (iv) compliance with any applicable
requirements of Exchange Act; and (v) any applicable requirements of non-United
States competition, antitrust and investment laws and (B) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the consummation of the
Merger or otherwise prevent Scotts or Merger Subsidiary from performing its
obligations under this Agreement, and would not, individually or in the
aggregate, have a Scotts Material Adverse Effect.
SECTION 4.05. Non-Contravention. The execution, delivery and
performance by Scotts and Merger Subsidiary of this Agreement and the
consummation by Scotts and Merger Subsidiary of the transactions contemplated
hereby, assuming receipt of the Scotts Shareholder Consent, do not and will not
(i) contravene or conflict with the Articles of Incorporation or Code of
Regulations of Scotts or Merger Subsidiary; (ii) assuming compliance with the
matters referred to in Section 4.04, contravene or conflict with or constitute
a violation of any provision of law, rule regulation, judgment, injunction,
order or decree binding upon Scotts or Merger Subsidiary; (iii) assuming
satisfaction or waiver of the conditions set forth in Section 9.01(i) and
Section 9.01(ii), constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Scotts
or Merger Subsidiary or to a loss of any material benefit to which Scotts or
Merger Subsidiary is entitled under any material agreement, contract or other
instrument binding upon Scotts or Merger Subsidiary; or (iv) result in the
creation or imposition of any Lien on any asset of Scotts or Merger Subsidiary,
except, in the case of clauses (ii), (iii) and (iv), for any such conflicts,
violations, defaults, breaches or other occurrences which would not prevent or
delay consummation of the Merger, or otherwise prevent Scotts or Merger
Subsidiary from performing its obligations under this Agreement, and would not,
individually or in the aggregate, have a Scotts Material Adverse Effect.
SECTION 4.06. Capitalization. (a) As of the date hereof, the
authorized capital stock of Scotts consists of 35,000,000 shares of Scotts
Common Stock. As of January 15, 1995, there were outstanding 18,667,064 shares
of Scotts Common Stock and employee stock options to purchase an aggregate of
1,428,705 shares of Scotts Common Stock (of which options to purchase an
aggregate of 575,816 shares were exercisable). All of the outstanding common
shares of Scotts have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in this Section and except for
changes since January 15, 1995, resulting from the exercise of employee stock
options outstanding on such date, there are
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outstanding (i) no shares of capital stock or other voting securities of
Scotts, (ii) no securities of Scotts convertible into or exchangeable for
shares of capital stock or voting securities of Scotts, and (iii) no options or
other rights to acquire from Scotts, and no obligation of Scotts to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Scotts (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "Scotts Securities").
There are no outstanding obligations of Scotts or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Scotts Securities. "Subsidiary,"
with respect to Scotts, means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by Scotts.
(b) The authorized capital stock of Merger Subsidiary consists of
1,000 common shares, without par value. As of the date hereof, there are
outstanding 1,000 common shares. All of the outstanding common shares of
Merger Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in this Section, there are
outstanding (i) no shares of capital stock or other voting securities of
Merger Subsidiary, (ii) no securities of Merger Subsidiary convertible into or
exchangeable for shares of capital stock or voting securities of Merger
Subsidiary, and (iii) no options or other rights to acquire from Merger
Subsidiary, and no obligation of Merger Subsidiary to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Merger Subsidiary.
(c) The Merger Consideration, when issued in accordance with this
Agreement, will be duly authorized, validly issued, in the case of the
Convertible Preferred Stock, fully paid and non-assessable, and, in the case of
the Warrants, valid and binding obligations of Scotts.
SECTION 4.07. SEC Filings; Financial Statements. (a) Scotts has
filed all forms, reports and documents required to be filed by it with the SEC
since September 30, 1992, and has heretofore made available to the Company and
the Shareholders, in the form filed with the SEC (excluding any exhibits
thereto, unless otherwise specifically requested by the Company or the
Shareholders), (i) its Annual Reports on Form 10-K for the fiscal years ended
September 30, 1992, 1993 and 1994, respectively; (ii) all proxy statements
relating to meetings of Scotts' shareholders (whether annual or special) held
since October 1, 1992; and (iii) all other reports and registration statements
(other than Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
filed prior to September 30, 1994) filed with the SEC since October 1, 1992
(the forms, reports and other documents referred to in clauses (i) through
(iii) being referred to herein, collectively, as the "Scotts Disclosure
Documents"). The Scotts Disclosure Documents and any other forms, reports or
other documents filed by Scotts with the SEC after the date of this Agreement
but prior to the Effective Time (x) were prepared, or will be prepared, in
accordance with the Securities Act or the Exchange Act, as the case may be, and
(y) did not at the time they were filed, or will not at the time they are
filed, with the SEC contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under
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which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished to Scotts by any
Miracle-Gro Constituent Company or any Shareholder. Notwithstanding anything
herein to the contrary, neither Scotts nor Merger Subsidiary makes any
representation or warranty regarding any financial projection relating to
Scotts or any of its Subsidiaries or any other indications of future financial
performance or results of Scotts or any of its Subsidiaries.
(b) Each of the consolidated financial statements (including any
notes thereto) contained in the Annual Report on Form 10- K for the fiscal year
ended September 30, 1994 (the "1994 Form 10-K"), was prepared in accordance
with generally accepted accounting principles and fairly presents the
consolidated financial position, results of operations and cash flows of Scotts
and its consolidated subsidiaries as at the respective dates thereof and for
the respective periods indicated therein.
(c) Except as and to the extent set forth in the consolidated balance
sheet included in the 1994 Form 10-K, or as otherwise set forth in Section 4.07
of the disclosure schedule previously delivered to the Company by Scotts (the
"Scotts Disclosure Schedule"), Scotts had no liability or obligation of any
nature (whether accrued, contingent, absolute, determined, determinable or
otherwise) that (i) would be required to be reflected in such consolidated
balance (including the notes thereto) or (ii) would have, or could reasonably
be likely to have, individually or in the aggregate, a Scotts Material Adverse
Effect.
SECTION 4.08. Absence of Certain Changes. Since September 30, 1994,
and except as disclosed to the Company in Section 4.08 of the Scotts Disclosure
Statement or as otherwise contemplated by this Agreement, Scotts has conducted
its business only in the ordinary course consistent with past practice and
there has not been:
(a) any event, occurrence or development of a state
of circumstances or facts which has had or reasonably could be
expected to have a Scotts Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of
capital stock of Scotts, or any repurchase, redemption or
other acquisition by Scotts or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or
other ownership interests in, Scotts;
(c) any amendment of any material term of any
outstanding security of Scotts;
(d) any incurrence, assumption or guarantee by
Scotts of indebtedness for borrowed money, which incurrence,
assumption or guarantee is material to Scotts and its
Subsidiaries, taken as a whole;
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(e) any creation or assumption by Scotts of a Lien
on any material asset, which creation or assumption is
material to Scotts and its Subsidiaries, taken as a whole,
other than those in the ordinary course of business consistent
with past practices;
(f) any making of any loan, advance or capital
contribution to or investment in any Person, which is material
to Scotts and its Subsidiaries, taken as whole, other than
loans, advances or capital contributions to or investments in
any Subsidiary of Scotts made in the ordinary course of
business consistent with past practices;
(g) any transaction or commitment made, or any
contract or agreement entered into, by Scotts or its
Subsidiaries relating to their respective assets or business
(including the acquisition or disposition of any assets) or
any relinquishment by Scotts or its Subsidiaries of any
contract or other right, in either case, material to Scotts
and its Subsidiaries, taken as a whole, other than
transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated
by this Agreement;
(h) any change in any method of accounting or
accounting practice by Scotts, except for any such change
required by reason of a concurrent change in generally
accepted accounting principles; or
(i) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of Scotts,
which employees were not subject to a collective bargaining
agreement at September 30, 1994, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with
respect to such employees.
SECTION 4.09. No Undisclosed Material Liabilities. Except as and to
the extent set forth in the 1994 Form 10-K, or as otherwise set forth in
Section 4.09 of the Scotts Disclosure Schedule, neither Scotts nor any of its
Subsidiaries had any liability or obligation of any nature (whether accrued,
contingent, absolute, determined, determinable or otherwise) that (i) would be
required to be reflected on a consolidated balance sheet of Scotts and its
Subsidiaries (including the notes thereto) or (ii) would have, or could
reasonably be likely to have, individually or in the aggregate, a Scotts
Material Adverse Effect.
SECTION 4.10. Litigation. Except as set forth in the 1994 Form 10-K
or in Section 4.10 of the Scotts Disclosure Schedule, there is no claim,
action, suit, investigation or proceeding pending against or, to the knowledge
of Scotts, threatened against Scotts or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which, individually or in the aggregate, would reasonably be
likely to have a Scotts Material Adverse Effect or would reasonably be likely
to have impair
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the ability of Scotts or Merger Subsidiary to consummate the Merger or the
other transactions contemplated by this Agreement.
SECTION 4.11. Taxes. Scotts and each of its Subsidiaries has timely
filed all Tax Returns required to be filed with the appropriate tax authority
through the date hereof, the failure of which to file would result in a Scotts
Material Adverse Effect, and shall timely file all such Tax Returns required to
be filed on or before the Effective Time. To the best knowledge of Scotts,
such Tax Returns are and will be true, correct and complete in all material
respects. Scotts and each of its Subsidiaries has paid and discharged all
federal, state, local and foreign Taxes due from them, other than such Taxes
that are adequately reserved as shown on the balance sheet of Scotts included
in the 1994 Form 10-K (the "Scotts Balance Sheet"). Neither the Internal
Revenue Service nor any other taxing agency or authority, domestic or foreign,
is now asserting or, to the best knowledge of Scotts, threatening to assert
against Scotts or any of its Subsidiaries any material deficiency or claim for
additional Taxes. There are no unexpired waivers by Scotts or any of its
Subsidiaries of any statutes of limitations with respect to Taxes which,
individually or in the aggregate would have a Scotts Material Adverse Effect.
The accruals and reserves for Taxes reflected in the Scotts Balance Sheet are
adequate for the periods covered. Scotts and each of its Subsidiaries has
withheld or collected and paid over to the appropriate governmental authorities
or is properly holding for such payment all Taxes required by law to be
withheld or collected, except to the extent that the failure to so withhold or
collect and pay would not, individually or in the aggregate, have a Scotts
Material Adverse Effect. There are no Liens for Taxes upon the assets of
Scotts or any of its Subsidiaries, which, individually or in the aggregate
would have a Scotts Material Adverse Effect or other than Liens for current
Taxes not yet due and payable. Scotts has not agreed to make, and is not
required to make, any adjustment under Section 481(a) of the Code. Neither
Scotts nor any of its Subsidiaries is a party to any agreement, contract,
arrangement or plan that has resulted, or could result, individually or in the
aggregate, in the payment of "excess parachute payments" within the meaning of
Section 280G of the Code. For purposes of this Section 4.11 only, a Scotts
Material Adverse Effect shall mean a Loss (as hereafter defined) in excess of
$500,000.
SECTION 4.12. ERISA. (a) Section 4.12(a) of the Scotts Disclosure
Schedule includes a list identifying each material "employee benefit plan," as
defined in Section 3(3) of ERISA, which (i) is subject to any provision of
ERISA and (ii) is maintained, administered or contributed to by Scotts, any of
its Subsidiaries or any affiliate (as defined below) and covers any employee or
former employee of Scotts, any of its Subsidiaries or any affiliate or under
which Scotts, any of its Subsidiaries or any affiliate has any liability.
Copies of such plans (and, if applicable and available, related trust
agreements) and all amendments thereto have been furnished to the Company.
Such plans are referred to collectively herein as the "Scotts Employee Plans."
For purposes of this Section, "affiliate" of any Person means any other Person
which, together with such Person, would be treated as a single employer under
Section 414 of the Code. The only Employee Plans which individually or
collectively would constitute an "employee pension benefit plan" as defined in
Section 3(2) of ERISA (the "Scotts Pension Plans") are identified as such in
the list referred to above. Scotts has provided the Company with (x) complete
age, salary, service and related data as of December 31, 1994 for employees and
former employees of
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Scotts, any of its Subsidiaries and any affiliate covered under the Scotts
Pension Plans who had a salary in excess of $100,000 for the fiscal year ended
September 30, 1994 and (y) the two most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan.
(b) Except as otherwise identified in Section 4.12(b) of the Scotts
Disclosure Schedule, no Scotts Employee Plan constitutes a "multiemployer
plan", as defined in Section 3(37) of ERISA (a "Scotts Multiemployer Plan"),
and no Scotts Employee Plan is maintained in connection with any trust
described in Section 501(c)(9) of the Code. The only Scotts Employee Plans
that are subject to Title IV of ERISA (the "Scotts Retirement Plans") are
identified in the list of such Plans heretofore provided to the Company by
Scotts. As of the Scotts Balance Sheet Date, the fair market value of the
assets of each Scotts Retirement Plan (excluding for these purposes any accrued
but unpaid contributions) exceeded the present value of all benefits accrued
under such Scotts Retirement Plan determined on a termination basis using the
assumptions established by the PBGC as in effect on such date. No "accumulated
funding deficiency," as defined in Section 412 of the Code, has been incurred
with respect to any Scotts Pension Plan, whether or not waived. Scotts knows
of no "reportable event," within the meaning of Section 4043 of ERISA for which
the 30- day notice requirement to the PBGC has not been waived, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Scotts Employee Plan, other than a "reportable event" that,
individually or in the aggregate, will not have a Scotts Material Adverse
Effect. No condition exists and no event has occurred that would constitute
grounds for termination of any Scotts Retirement Plan or, with respect to any
Scotts Employee Plan which is a Scotts Multiemployer Plan, presents a material
risk of a complete or partial withdrawal under Title IV of ERISA and neither
Scotts, any of its Subsidiaries nor any of their respective affiliates has
incurred any material liability under Title IV of ERISA arising in connection
with the termination of, or complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA. If a "complete withdrawal"
by Scotts, its Subsidiaries and all of their respective affiliates were to
occur as of the Effective Time with respect to all Scotts Employee Plans which
are Scotts Multiemployer Plans, neither Scotts, its Subsidiaries nor any such
affiliate would incur any material withdrawal liability under Title IV of
ERISA. To Scotts' knowledge, nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Scotts
Employee Plan has or will make Scotts or any of its Subsidiaries or any officer
or director of Scotts or any of its Subsidiaries subject to any liability under
Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code
that could, individually or in the aggregate, have a Scotts Material Adverse
Effect.
(c) Each Scotts Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Scotts has furnished
to the Company copies of the most recent Internal Revenue Service
determination letters with respect to each such Plan. Each Scotts Employee
Plan has been maintained in material compliance with its terms and with the
requirements prescribed by any
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and all statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, which are applicable to such Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Scotts, any of its Subsidiaries or any affiliate
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Sections 162(a)(1)
or 280G of the Code.
(e) Section 4.12(e) of the Scotts Disclosure Schedule sets forth a
list of each material employment, severance or other similar contract,
arrangement or policy and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), disability
benefits, supplemental unemployment benefits, retirement benefits or for
deferred compensation, stock options, stock appreciation or post-retirement
insurance, compensation or benefits which (i) is not a Scotts Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by
Scotts, its Subsidiaries or any of their respective affiliates and (iii) covers
any domestic employee or former employee of Scotts, any of its Subsidiaries or
any of their respective affiliates. Such contracts, plans and arrangements as
are described above are referred to collectively herein as the "Scotts Benefit
Arrangements." Scotts has furnished or made available to the Company copies or
descriptions of such Scotts Benefit Arrangements. Each Scotts Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Scotts Benefit Arrangement.
(f) The excess of the present value of the projected liability in
respect of post-retirement health and medical benefits for retired employees of
Scotts, its Subsidiaries and their respective affiliates, determined using
assumptions that are reasonable in the aggregate, over the fair market value of
any fund, reserve or other assets segregated for the purpose of satisfying such
liability (including for such purposes any fund established pursuant to Section
401(h) of the Code) does not in the aggregate exceed $20,000,000. No condition
exists that would prevent Scotts of any of its Subsidiaries from amending or
terminating any Scotts Employee Plan or Scotts Benefit Arrangement providing
health or medical benefits in respect of any active employee of Scotts or any
of its Subsidiaries other than limitations imposed under the terms of a
collective bargaining agreement.
(g) Except as set forth in Section 4.12(g) of the Scotts Disclosure
Schedule, neither Scotts nor any of its Subsidiaries is a party to or subject
to any union contract or any employment contract or arrangement providing for
annual future compensation of $100,000 or more with any domestic officer,
consultant, director or employee.
(h) The consummation of the transactions contemplated by this
Agreement will not result in any material acceleration of benefits, or the
modification of the terms of any benefits, payable to or for the benefit of any
officer, director or employee of Scotts or any of its Subsidiaries, including
any acceleration of vesting of stock options or any changes in the amounts or
timing of any amounts payable under any incentive arrangement.
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SECTION 4.13. Trademarks, Patents and Copyrights. (a) Section
4.13(a) of the Scotts Disclosure Schedule sets forth a true and complete list
of (i) all patents, patent rights, trademarks, trademark rights, trade names,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, know-how and other proprietary rights and information used or
held for use in connection with the business of Scotts as currently conducted
(collectively, "Scotts Intellectual Property Rights") and (ii) all licenses,
commitments and other agreements to which Scotts or any of its Subsidiaries is
a party providing for the license of any Intellectual Property Rights to or
from any other Person.
(b) Except as set forth in Section 4.13(b) of the Scotts Disclosure
Schedule, Scotts and its Subsidiaries own or possess adequate licenses or other
rights to use all of the Scotts Intellectual Property Rights; there are no
Scotts Intellectual Property Rights necessary for use in connection with the
business of Scotts as currently conducted which are not owned or possessed by
Scotts or its Subsidiaries; and Scotts is not aware of any assertion or claim
challenging the validity of any of the Scotts Intellectual Property Rights; and
the conduct of the business of Scotts as currently conducted, to the best
knowledge of Scotts, does not conflict in any way with any patent, patent
right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party. To the best knowledge of Scotts,
there are no infringements of any proprietary rights owned by or licensed by or
to Scotts or any of its Subsidiaries that individually or in the aggregate
would have a Scotts Material Adverse Effect.
SECTION 4.14. Material Contracts. (a) Except for agreements,
contracts, plans, leases, arrangements or commitments (in each case, oral or
written) set forth in Section 4.14(a) of the Scotts Disclosure Schedule or set
forth in the exhibit list to the 1994 Form 10-K, neither Scotts nor any of its
Subsidiaries is a party to or subject to:
(i) any lease which is material to Scotts and its
Subsidiaries, taken as a whole;
(ii) any contract for the purchase of materials,
supplies, goods, services, equipment or other assets which is
material to Scotts and its Subsidiaries, taken as a whole;
(iii) any sales, distribution or other similar
agreement which is material to Scotts and its Subsidiaries,
taken as a whole;
(iv) any partnership, joint venture or other similar
contract arrangement or agreement which is material to Scotts
and its Subsidiaries, taken as a whole;
(v) any contract relating to indebtedness for
borrowed money or the deferred purchase price of property
(whether incurred, assumed, guaranteed or secured by any
asset), which is material to Scotts and its Subsidiaries,
taken as a whole;
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(vi) any license agreement, franchise agreement or
agreement in respect of similar rights, which is material to
Scotts and its Subsidiaries, taken as a whole
(vii) any agency, dealer, sales representative or
other similar agreement which is material to Scotts and its
Subsidiaries, taken as a whole;
(viii) any contract or other document that
substantially limits the ability of Scotts or any of its
Subsidiaries to compete in any material line of business or in
a material way with any Person or in any area or which would
so restrict Scotts or any of its Subsidiaries after the
Effective Time; or
(ix) any other contract or commitment of Scotts or
any of its Subsidiaries not made in the ordinary course of
business that is material to Scotts and its Subsidiaries,
taken as a whole.
(b) Each agreement, contract, lease, arrangement and
commitment disclosed in Section 4.14(a) of the Scotts Disclosure Schedule or
required to be disclosed pursuant to this Section is a valid and binding
agreement of Scotts or such Subsidiary and is in full force and effect, and
neither Scotts, such Subsidiary nor, to the knowledge of Scotts, any other
party thereto is in default in any material respect under the terms of any such
agreement, contract, plan, lease arrangement or commitment.
SECTION 4.15. Compliance with Laws. Neither Scotts nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any laws, rules, statutes, ordinances or regulations, except for violations
that would not, individually or in the aggregate, have a Scotts Material
Adverse Effect.
SECTION 4.16. Finders' Fees. No investment banker, broker, finder or
other intermediary (other than Smith Barney, Inc. ("Smith Barney")) has been
retained by, or authorized to act on behalf of, Scotts and entitled to any fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement. Scotts has previously furnished to the Company a complete and
correct copy of all agreements between Smith Barney and Scotts pursuant to
which such firm would be entitled to any payment relating to the Merger or the
transactions contemplated by this Agreement.
SECTION 4.17. Environmental Compliance. Except as set forth in
Section 4.17 of the Scotts Disclosure Schedule:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed, no penalty has
been assessed and no investigation or review is pending, or to the knowledge of
Scotts, after due inquiry, threatened by any governmental or other entity, and
there are no existing orders, decrees or agreements in effect or, to the
knowledge of Scotts, after due inquiry, threatened, (i) with respect to any
alleged material violation of any Environmental Law in connection with the
conduct of the business of
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Scotts (for purposes of this Section 4.17, Scotts shall include any predecessor
of Scotts) or (ii) with respect to any alleged failure to have any permit,
certificate, license, approval, registration or authorization required by
Environmental Law in connection with the conduct of the business of Scotts or
(iii) with respect to any Release of a Polluting Substance with respect to
which Scotts is or may be liable, except in each case such alleged material
violation, alleged failure or Release which could not reasonably be expected,
individually or in the aggregate, to result in a Loss (as hereafter defined) by
Scotts in excess of $100,000.
(b) Except as set forth in Section 4.17(b) of the Scotts Disclosure
Schedule, (i) Scotts has not, other than as a generator, handled any Polluting
Substance on any property now or previously owned or leased by Scotts or its
Subsidiaries; (ii) no asbestos is present at any property now or previously
owned or leased by Scotts or its Subsidiaries; (iii) there are no underground
storage tanks currently in use or, to the knowledge of Scotts, abandoned at any
property now or previously owned or leased by Scotts or any of its Subsidiaries
which have been used to store or have contained a substance which is regulated
by Environmental Laws or which, if released into the environment, would result
in pollution, (iv) there has been no Release of any Polluting Substance with
respect to which Scotts or any of its Subsidiaries may reasonably be required
to perform investigation or remediation, other than routine spills and leaks
which are addressed in the ordinary course of business, at, on or under any
property now or previously owned or leased by Scotts or any of its Subsidiaries
and (v) no Hazardous Substance (as defined in CERCLA) is present in a
reportable or threshold planning quantity, where such a quantity has been
established by statute, ordinance, rule, regulation or order, at, on or under
any property now or previously owned by Scotts or any of its Subsidiaries.
(c) To the knowledge of Scotts, neither Scotts nor any or its
Subsidiaries has transported or arranged for the transportation (directly or
indirectly) of any Hazardous Substance (as defined in CERCLA) to any location
which is listed or proposed for listing on the Nationwide Priorities List
established under CERCLA or on any similar state list.
(d) To the knowledge of Scotts, no oral or written notification of a
Release of a Hazardous Substance (as defined in CERCLA) has been filed by or on
behalf of Scotts or any of its Subsidiaries, and no property now or previously
owned or leased by Scotts or any of its Subsidiaries is listed, or to the
knowledge of Scotts, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA.
(e) There are no environmental Liens on any asset of Scotts or any of
its Subsidiaries and no government actions have been taken or are in process
which could subject any of such assets to such Liens.
(f) Except as set forth in Section 4.17(f) of the Scotts Disclosure
Schedule, there have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or which are in the
possession of Scotts in relation to any property or facility now or previously
owned or leased by Scotts or any of its Subsidiaries.
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SECTION 4.18. Opinion of Financial Advisor. Scotts received the
opinion of Smith Barney orally on January 24, 1995 to the effect that, as of
such date, the Merger Transactions are fair to the shareholders of Scotts from
a financial point of view and a copy of the written confirmatory opinion to
such effect will be delivered to the Company promptly upon receipt.
ARTICLE V
COVENANTS OF THE MIRACLE-GRO CONSTITUENT
COMPANIES AND THE SHAREHOLDERS
Each of the Miracle-Gro Constituent Companies and the Shareholders,
jointly and severally, agree that:
SECTION 5.01. Conduct of the Business of the Miracle-Gro Constituent
Companies. From the date hereof until the Effective Time unless Scotts shall
otherwise have consented in writing, the Miracle-Gro Constituent Companies
shall conduct their respective businesses in the ordinary course consistent
with past practice and shall use their best efforts to preserve intact their
business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as contemplated or required by this Agreement or set
forth in Section 5.01 of the Company Disclosure Schedule, none of the
Miracle-Gro Constituent Companies shall, directly or indirectly, do, or propose
or agree to do, any of the following without the prior written consent of
Scotts:
(a) adopt or propose any change in their respective
certificates of incorporation or bylaws or equivalent
organizational documents;
(b) merge or consolidate with any other Person or
acquire a material amount of assets of any other Person;
(c) lease, license or otherwise dispose of any
material assets or property except (i) pursuant to existing
contracts or commitments or (ii) in the ordinary course
consistent with past practice;
(d) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or
otherwise, with respect to any of their respective capital
stock;
(e) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of
their respective capital stock;
(f) increase the compensation payable or to become
payable to any of the Miracle-Gro Constituent Companies'
executive officers, directors or employees,
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except for increases in the ordinary course of business
consistent with past practice, or grant any severance or
termination pay to, or enter into any employment or severance
agreement with any director or executive officer, or establish,
adopt, enter into or amend in any material respect or take
action to accelerate any rights or benefits under any
collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, executive officer
or employee;
(g) agree or commit to do any of the foregoing; or
(h) take or agree or commit to take any action that
would make any representation and warranty of the Miracle-Gro
Constituent Companies or the Shareholders hereunder inaccurate
in any respect at, or as of any time prior to, the Effective
Time.
SECTION 5.02. Access to Information; Confidentiality. (a) From the
date hereof until the Effective Time, the Company shall afford Scotts, its
officers, directors, employees, counsel, financial advisors, auditors and other
authorized representatives (the "Scotts Representatives") reasonable access to
the offices, properties, books and records of each of the Miracle-Gro
Constituent Companies, will furnish to Scotts and the Scotts Representatives
such financial and operating data and other information as such Persons may
reasonably request and will instruct the Miracle-Gro Constituent Companies'
employees, counsel and financial advisors to cooperate with Scotts in its
investigation of the business of the Miracle-Gro Constituent Companies;
provided that no investigation pursuant to this Section shall affect any
representation or warranty given by the Miracle-Gro Constituent Companies and
the Shareholders to Scotts and Merger Subsidiary hereunder.
(b) All information obtained by Scotts pursuant to this Section shall
be kept confidential in accordance with the confidentiality agreements dated as
of October 3, 1994, between Scotts and the Company.
SECTION 5.03. Other Offers. From the date hereof until the later of
the termination of this Agreement and the Effective Time, none of the
Miracle-Gro Constituent Companies, the Shareholders or any officer, director,
employee or other agent of any of the Miracle-Gro Constituent Companies will,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any inquiries or the making or implementation of any proposal or offer with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, any Miracle-Gro Constituent Company (a "Company
Acquisition Proposal"), other than the transactions contemplated by this
Agreement, or (ii) engage in negotiations with, or disclose any nonpublic
information relating to any of the Miracle-Gro Constituent Companies or afford
access to the properties, books or records of any of the Miracle-Gro
Constituent Companies to, any Person that the Company
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believes may be considering making, or has made, a Company Acquisition
Proposal. The Company will promptly notify Scotts upon receipt of any Company
Acquisition Proposal or any indication that any Person is considering making a
Company Acquisition Proposal or any request for nonpublic information relating
to any of the Miracle-Gro Constituent Companies or for access to the
properties, books or records of any of the Miracle-Gro Constituent Companies by
any Person that may be considering making, or has made, a Company Acquisition
Proposal and will keep Scotts fully informed of the status and details of any
such Company Acquisition Proposal, indication or request.
SECTION 5.04. Notices of Certain Events. The Company shall promptly
notify Scotts of:
(i) any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement;
(ii) any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement;
(iii) the occurrence, or non-occurrence, of any
event the occurrence, or non-occurrence, of which would be
likely to cause (x) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement
not to be complied with or satisfied; and
(iv) any failure of any Miracle-Gro Constituent
Company or any Shareholder to comply with or satisfy any
covenant, condition or agreement to be complied with or
satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
shall not limit or otherwise affect the remedies available hereunder to Scotts.
SECTION 5.05. Certain Loans. (a) The parties acknowledge that
Miracle-Gro Delaware owes $5.0 million to the Hagedorn Family Fund. The
parties agree that such amount shall be paid, without interest, as follows:
All available cash at such company (or the successor division of New
Miracle-Gro treated for this purpose as a separate business unit), including
all amounts received from the sale of inventory or the collection of accounts
receivable, shall be paid to the Hagedorn Family Fund until the amount set
forth in the first sentence of this paragraph has been repaid in full. If such
amount has not been paid in full by the close of business on September 30,
1995, Scotts will cause Miracle-Gro Delaware or New Miracle-Gro, as its
successor, to pay the remaining balance immediately following such date.
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(b) The parties acknowledge that Miracle-Gro UK owes $3.5 million to
the Hagedorn Family Fund. The parties agree that payment shall be made as
follows, without interest: All available cash at such company (or the
successor division of New Miracle-Gro treated for this purpose as a separate
business unit), including all amounts received from the sale of inventory or
the collection of accounts receivable, shall be paid to the Hagedorn Family
Fund, such payments to continue until the close of business on September 30,
1995, or until there is no remaining cash or inventory, at which point such
payments shall cease. If the amount set forth in the first sentence of this
paragraph (b) has not been repaid in full on such date the outstanding balance
shall be forgiven.
(c) Following the Effective Time, Scotts shall operate the businesses
of Miracle-Gro Delaware and Miracle-Gro UK in the ordinary course of business
and will not take any action restricting the sale of inventory, the collection
of accounts receivable, or any other action which would interfere with the
payments contemplated by this Section 5.05.
ARTICLE VI
STANDSTILL AND VOTING PROVISIONS;
RESTRICTIONS ON TRANSFER
SECTION 6.01. Certain Definitions. For purposes of this Article VI
only, the following terms have the following meanings:
(a) "Affiliate" and "Associate" shall have the meaning set forth in
Rule 405 of Regulation C under the Securities Act.
(b) "beneficial ownership" and "beneficially own" shall have the
meanings set forth in Rule 13d-3 under the Exchange Act.
(c) "group" shall have the meaning comprehended by Section 13(d)(3)
of the Exchange Act; provided that, for purposes of this Agreement, the
Shareholders shall not by themselves, or together with any Permitted
Transferee, constitute a "group."
(d) The "Market Price" of a share of Scotts Common Stock on any date
means (i) the last reported sales price of the Scotts Common Stock on the
principal national securities exchange on which the Scotts Common Stock is
listed or admitted to trading or, if no such reported sale takes place on any
such day, the average of the closing bid and asked prices thereon, as reported
in The Wall Street Journal, or (ii) if the Scotts Common Stock shall not be
listed or admitted to trading on a national securities exchange, the last
reported sales price on the NASDAQ National Market System or, if no such
reported sale takes place on any such day, the average of the closing bid and
asked prices thereon, as reported in The Wall Street Journal, or (iii) if the
Scotts Common Stock shall not be quoted on such National Market System nor
listed or admitted to trading on a national securities exchange, then the
average of the closing
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bid and asked prices, as reported by The Wall Street Journal for the
over-the-counter market, or (iv) if there is no public market for the Scotts
Common Stock, the fair market value of a share of Scotts Common Stock as
determined in good faith by the Board of Directors of Scotts after consultation
with an independent investment bank of national repute (whose report will be
made available to the Shareholders prior to such determination of fair market
value).
(e) "Permitted Transferee" means the Shareholders, on the one hand,
and any other Shareholder, any lineal descendant of any Shareholder, any member
of the immediate family of any Shareholder or such descendant, any heir of the
foregoing, any trust for the benefit of any of the foregoing (including a
voting trust), any private charitable foundation or any partnership, limited
liability company or corporation owned or controlled by some or all of the
foregoing or any charity (public or private) which is transferred a
non-controlling interest (except as otherwise required by applicable law) in a
Permitted Transferee, on the other; provided, that such Permitted Transferee
has agreed in writing to be bound by the terms of this Agreement as if it were
a "Shareholder" hereunder.
(f) "Shareholder Representative" means a Shareholder who is a natural
person and has been chosen in writing, with notice thereof to Scotts, by a
majority of the Shareholders based on their then percentage of beneficial
ownership of Total Voting Power.
(g) "Standstill Percentage" means 43% of Total Voting Power.
(h) "Total Voting Power" means, at any time, the aggregate number of
votes which may be cast by holders of outstanding Voting Stock.
(i) "Voting Stock" means the Scotts Common Stock, the Convertible
Preferred Stock and any other securities (including voting preferred shares)
issued by Scotts which are entitled to vote generally for the election of
directors of Scotts, whether currently outstanding or hereafter issued (other
than securities having such powers only upon the occurrence of a contingency).
(j) "Voting Stock Equivalents" means the Warrants and any other
security that is not Voting Stock but is convertible into or exchangeable for
Voting Stock or is an option to purchase such securities or Voting Stock.
SECTION 6.02. Board of Directors. (a) At the Effective Time,
Scotts will take such action as may be necessary to increase the size of the
Board of Directors to 12 and to fill a vacancy existing in each of the three
classes of directors (assuming the amendment of the Code of Regulations of
Scotts as contemplated by Section 9.01(v) hereof) with a director designated by
the Shareholder Representative (or in the event that the condition set forth in
Section 9.01(v) is waived by the parties, with three directors designated by
the Shareholder Representative) (each, a "Miracle-Gro Director" and,
collectively, the "Miracle-Gro Directors"). Scotts acknowledges and accepts
that the initial three Miracle-Gro Directors are the persons named in
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Section 9.02(iv), it being understood that any future successor designees will
be reasonably acceptable to the Scotts Board of Directors.
(b) Until the earlier of the fifth anniversary of the Effective Time
and such time as the Shareholders no longer beneficially own at least 19% of
the Voting Stock, Scotts covenants and agrees as follows:
(i) except as contemplated by this Agreement or as required
in the terms of the Convertible Preferred Stock, Scotts will not take
or recommend to its shareholders any action which would cause the
Board of Directors of Scotts to consist of any number of directors
other than twelve directors divided into three classes of four
directors each;
(ii) to the extent that, and for so long as, Scotts maintains
a Nominating Committee and/or an Executive Committee of the Board of
Directors, such committee(s) shall consist of four directors, one of
whom shall be a Miracle-Gro Director;
(iii) to the extent that, and for so long as, any of the
Miracle-Gro Directors is qualified under the then-current rules and
regulations of the Nasdaq National Market, or any exchange on which
the Scotts Common Stock is listed, the rules and regulations under the
Code relating to the qualification of employee stock benefit plans and
Scotts' Code of Regulations, the Audit Committee, Compensation
Committee and any newly created committees of the Board of Directors
shall consist of four directors, and one of the Miracle-Gro Directors
shall be entitled to sit on such committee(s) to the same extent, and
on the same basis, as the other members of the Board of Directors; and
(iv) subject to the fiduciary duties of the members of the
Nominating Committee to Scotts' shareholders, Scotts will use its best
efforts to cause the Nominating Committee to recommend for election to
the class of directors whose terms expire in any year, one Miracle-Gro
Director; provided, that if the Shareholders vote all of their
outstanding shares of Voting Stock in favor of the election of such
Miracle-Gro Director and such Miracle-Gro Director nevertheless is not
elected by the shareholders of Scotts, or if such Miracle-Gro Director
is not nominated for election or is not recommended for election by
the Scotts Board, the provisions of this Article VI shall no longer be
in effect.
SECTION 6.03. Rule 145. With a view to making available to the
Shareholders the benefits of Rule 145 promulgated under the Securities Act, and
any other similar rules or regulations of the SEC which may at any time permit
the Shareholders to sell or distribute without registration the Scotts Common
Stock issued upon conversion of the Convertible Preferred Stock or upon
exercise of the Warrants, Scotts agrees to use its best efforts to file with
the SEC in a timely manner all reports and other documents required to be
filed by it under the Exchange Act.
SECTION 6.04. Registration Rights. Scotts will comply with the
provisions regarding registration rights contained in Annex E hereto.
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SECTION 6.05. Reservation of Shares. Scotts will reserve and keep
available out of its authorized but unissued shares of Scotts Common Stock the
full number of shares at any time deliverable on conversion of the Convertible
Preferred Stock or exercise of the Warrants.
SECTION 6.06. Standstill Restrictions. Until the fifth anniversary
of the Effective Time, the Shareholders covenant and agree as follows:
(a) Without the prior written consent of Scotts, the Shareholders
shall not, and shall not permit any of their respective Affiliates or
Associates to, directly or indirectly, authorize or make a tender or exchange
offer for, or purchase or otherwise acquire, or agree to acquire or obtain,
directly or indirectly, beneficial ownership of any Voting Stock, if the effect
of such acquisition would be to increase the outstanding number of shares of
Voting Stock then beneficially owned by the Shareholders, their Affiliates and
their Associates, in the aggregate, to an amount representing more than the
Standstill Percentage. It is expressly understood and agreed that, for
purposes of this Section 6.06 only, the Warrants, until exercised and subject
to the terms of such exercise, do not constitute beneficial ownership of
outstanding shares of Voting Stock.
(b) Notwithstanding the foregoing, the Shareholders shall not be
obligated to dispose of any shares of Voting Stock if their aggregate
percentage of Total Voting Power is increased as a result of a recapitalization
of Scotts or a repurchase of securities by Scotts or any other action taken by
Scotts or its Subsidiaries; provided, that, to the extent that any such
recapitalization or repurchase would increase the Standstill Percentage by more
than 1%, such Shareholders shall be obligated to dispose of shares of Voting
Stock sufficient to reduce their aggregate percentage of Total Voting Power to
less than the Standstill Percentage plus 1%. If Scotts repurchases any of its
Voting Stock and such repurchases result in the Shareholders owning more than
the Standstill Percentage, but less than the Standstill Percentage plus 1%, at
the effective time of such repurchases, the Shareholders shall not be obligated
to divest themselves of the Voting Stock to fall within the foregoing
percentage limitation, but shall not acquire any additional Voting Stock unless
such acquisition would otherwise be permitted under this Section 6.06.
(c) Subject to the limitations of subparagraph (a) of this Section
6.06, the Shareholders, their Affiliates and Associates, as a group, shall have
the right to purchase Voting Stock in the open market in an amount up to the
Standstill Percentage.
(d) Except as otherwise provided herein, no Shareholder shall join
any group or otherwise act in concert with any third person other than
Permitted Transferees for the purpose of acquiring, holding or disposing of
Voting Stock.
SECTION 6.07. Additional Standstill Restrictions. After the fifth
anniversary of the Effective Time, the Shareholders covenant and agree as
follows:
(a) The Shareholders shall not, and shall not permit any of their
respective Affiliates or Associates to, directly or indirectly, authorize or
make a tender or exchange offer for, or
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purchase or otherwise acquire, or agree to acquire or obtain, directly or
indirectly, beneficial ownership of any Voting Stock, if the effect of such
acquisition would be to increase the number of shares of Voting Stock then
beneficially owned by the Shareholders, their Affiliates and their Associates,
in the aggregate, to an amount representing more than 49% of Total Voting
Power, unless such acquisition is made pursuant to a tender offer for 100% of
Total Voting Power which tender offer is (i) made at a price per share which is
not less than the Market Price per share on the last trading day before the
announcement of such tender offer and (ii) conditioned upon the acquisition by
the Shareholders, their Affiliates and their Associates of beneficial ownership
of shares of Voting Stock representing at least 50% of the then outstanding
Total Voting Power not beneficially owned by the Shareholders or their
Affiliates or Associates. It is expressly understood and agreed that, for
purposes of this Section 6.07, the Warrants, until exercised and subject to the
terms of such exercise, do not constitute beneficial ownership of outstanding
shares of Voting Stock.
(b) Subject to the limitations of subparagraph (a) of this Section
6.07, the Shareholders, their Affiliates and Associates, in the aggregate,
shall have the right to purchase Voting Stock in the open market in an amount
up to their aggregate percentage ownership permitted under such subparagraph
(a).
(c) Except as otherwise provided herein, no Shareholder shall join
any group or otherwise act in concert with any third person other than
Permitted Transferees for the purpose of acquiring, holding or disposing of
Voting Stock.
SECTION 6.08. Voting. Until the earlier of the fifth anniversary of
the Effective Time and such time as the Shareholders no longer beneficially own
at least 19% of the Voting Stock:
(a) The Shareholders will take all such action as may be required so
that all shares of Voting Stock owned by the Shareholders, their Affiliates and
Associates, as a group, are voted (in person or by proxy) (i) for Scotts'
nominees to the Board of Directors of Scotts, in accordance with the
recommendation of the Nominating Committee of the Board of Directors, and (ii)
on all matters to be voted on by holders of Voting Stock, in accordance with
the recommendation of the Board of Directors, except with respect to a proposal
as to which shareholder approval is required under Ohio Law relating to (v) an
acquisition of Voting Stock of Scotts, (w) a merger or consolidation, (x) a
sale of all or substantially all of the assets of Scotts, (y) a
recapitalization of Scotts or (z) an amendment to the Articles of Incorporation
or Code of Regulations of Scotts which would materially adversely affect the
rights of the Shareholders. Each Shareholder shall be present, in person or by
proxy, at all duly held meetings of shareholders of Scotts so that all shares
of Voting Stock held by the Shareholders may be counted for the purposes of
determining the presence of a quorum at such meetings.
(b) Except as consented to by Scotts in writing, no Shareholder shall
deposit any shares of Voting Stock owned by him or her in a voting trust that
is not a Permitted Transferee or, subject any such shares to any similar
arrangement or agreement with or for the benefit of any Person that is not a
Permitted Transferee with respect to the voting of such shares.
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(c) Without Scotts' prior written consent, no Shareholder shall
solicit proxies with respect to any Voting Stock or become a participant in any
election contest (as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act) relating to the election of directors of Scotts.
(d) Without the prior consent of the Shareholder Representative,
Scotts shall not (i) issue Voting Stock or Voting Stock Equivalents
constituting in the aggregate more than 12.5% of Total Voting Power, other than
pursuant to stock option or other employee benefit plans in the ordinary course
of business, consistent with past practice; or (ii) in any single transaction
or series of related transactions outside of the ordinary course of business,
make an acquisition or disposition of assets which would require disclosure
pursuant to Item 2 of Form 8-K under the Exchange Act; provided, however, that
if five-sixths of the Board of Directors of Scotts determines that it is in the
best interests of Scotts and its shareholders to make an acquisition pursuant
to clause (ii) above without the consent of the Shareholder Representative,
such acquisition may be made without the consent of the Shareholder
Representative.
SECTION 6.09. Restrictions on Transfers of Voting Stock and Warrants.
(a) Prior to the fifth anniversary of the Effective Time, no Shareholder
shall, directly or indirectly, sell or transfer any Scotts Common Stock except:
(i) to Scotts or any Person or group approved by Scotts;
(ii) to any Permitted Transferee;
(iii) pursuant to a merger or consolidation of Scotts or
pursuant to a plan of liquidation of Scotts, which has been approved
by the Board of Directors of Scotts;
(iv) provided that the rights of the Shareholders under this
Agreement shall not transfer to the transferee of such securities,
pursuant to a bona fide public offering registered under the
Securities Act (which shall be structured to distribute such shares or
other securities, if any, through an underwriter or otherwise in such
a manner as, to the extent practicable, will not result in any Person
or group beneficially owning 3% or more of Total Voting Power being
transferred to a single person or group);
(v) subject to Section 6.10, provided that the rights of the
Shareholders under this Agreement shall not transfer to the transferee
of such securities, pursuant to Rule 144, Rule 145 or Rule 144A under
the Securities Act or otherwise, (x) if any such sale will not, to the
knowledge of the Shareholder, result in any Person or group
beneficially owning 3% or more of Total Voting Power to a single
person or group and (y) if all such sales by the Shareholders within
the preceding three months do not exceed, in the aggregate, the
greatest of the limits set forth in Rule 144(e)(1) under the
Securities Act;
(vi) in response to an offer to purchase or exchange for cash
or other consideration any Voting Stock (x) which is made by or on
behalf of Scotts, or (y) which
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is made by another person or group and is approved by the Board of
Directors of Scotts within the time such Board is required, pursuant
to regulations under the Exchange Act, to advise the shareholders of
Scotts of such Board's position on such offer; or
(vii) subject to Section 6.10, in any transfer not otherwise
described herein so long as such transfer does not, directly or
indirectly, result, to the best knowledge of the Shareholder, after
reasonable inquiry, in any Person or group beneficially owning 3% or
more of Total Voting Power.
(b) No Shareholder shall, directly or indirectly, sell or transfer
(x) any Convertible Preferred Stock or other Voting Stock or Voting Stock
Equivalents (other than Scotts Common Stock) or (y) prior to the fifth
anniversary of the Effective Time, any Warrants, except:
(i) to Scotts or any Person or group approved by Scotts;
(ii) to any Permitted Transferee; or
(iii) pursuant to a merger or consolidation of Scotts or
pursuant to a plan of liquidation of Scotts.
(iv) Convertible Preferred Stock convertible into Scotts
Common Stock representing in the aggregate no more than 15% of the
outstanding shares of Scotts Common Stock on a fully diluted basis or
any number of Warrants:
(1) subject to Section 6.10, provided that the
rights of the Shareholders under this Agreement shall not
transfer to the transferee of such securities and provided
that the Shareholders do not sell or transfer Warrants
pursuant to this clause (1) more than once per fiscal quarter
in the aggregate, pursuant to Rule 145 or Rule 144A under the
Securities Act or otherwise, (x) if any such sale will not to
the knowledge of the Shareholder, result in any Person or
group beneficially owning 3% or more of Total Voting Power and
(y) if all such sales by the Shareholders within the preceding
three months do not exceed, in the aggregate, the greatest of
the limits set forth in Rule 144(e)(1) under the Securities
Act; or
(2) subject to Section 6.10, in any transfer not
otherwise described herein so long as such transfer does not,
directly or indirectly, result, to the best knowledge of the
Shareholder, after reasonable inquiry, in any Person or group
beneficially owning 3% or more of Total Voting Power.
SECTION 6.10. Right of First Offer. Prior to making any sale or
transfer of shares of Scotts Common Stock pursuant to Section 6.09(a) (v) or
(vii) or of the Convertible Preferred Stock or Warrants pursuant to Section
6.09(b)(iv), the selling Shareholder (the "Selling Shareholder") will give
Scotts the opportunity to purchase such shares in the following manner:
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(a) The Selling Shareholder shall give notice (the "Transfer Notice")
to Scotts in writing of such intention specifying the number of shares of
Scotts Common Stock or Convertible Preferred Stock proposed to be sold or
transferred, the proposed price therefor (the "Transfer Consideration") and the
other material terms upon which such disposition is proposed to be made;
provided, that in the case of a sale or transfer of Convertible Preferred Stock
made pursuant to Section 6.09(b)(iv), the Transfer Consideration shall be equal
to (x) the aggregate Market Price of the shares of Scotts Common Stock into
which such shares of Convertible Preferred Stock could be converted at the time
of such Transfer Notice multiplied by (B) 105%.
(b) Scotts shall have the right, exercisable by written notice given
by Scotts to the Selling Shareholder within two business days after receipt of
the Transfer Notice (except in the case of a sale or transfer of Convertible
Preferred Stock made pursuant to Section 6.09(b)(iv), in which case, ten
business days after receipt of the Transfer Notice), to purchase all or any
part of the shares of Scotts Common Stock or Convertible Preferred Stock or the
number of Warrants specified in such Transfer Notice for cash in an amount
equivalent to the Transfer Consideration.
(c) If Scotts exercises its right of first offer hereunder, the
closing of the purchase of the shares of Scotts Common Stock or Convertible
Preferred Stock with respect to which such right has been exercised shall take
place within ten business days after Scotts gives notice of such exercise,
which period of time shall be extended, as necessary, in order to comply with
applicable securities and other applicable laws and regulations. Upon exercise
of its right of first offer, Scotts and the Selling Shareholder shall be
legally obligated to consummate the purchase contemplated thereby and shall use
their best efforts to secure any approvals required in connection therewith.
(d) If Scotts does not exercise its right of first offer hereunder
within the time specified for such exercise, the Selling Shareholder shall be
free, during the period of 90 calendar days following the expiration of such
time for exercise, to sell the shares of Scotts Common Stock or Convertible
Preferred Stock or the number of Warrants specified in the Transfer Notice
pursuant to Section 6.09(a)(v) or (vii) or Section 6.09(b)(iv), respectively,
at a price not less than the Transfer Consideration.
(e) In the event that Scotts elects to exercise any of its rights
under this Section 6.10, Scotts may specify, prior to closing such purchase,
another person as its designee to purchase the shares of Scotts Common Stock or
Convertible Preferred Stock to which such notice of intention to exercise such
rights relates. If Scotts designates another person as the purchaser pursuant
to this Section 6.10, Scotts shall be legally obligated to complete such
purchase if its designee fails to do so.
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ARTICLE VII
COVENANTS OF SCOTTS AND MERGER SUBSIDIARY
Scotts agrees that:
SECTION 7.01. Conduct of the Business of Scotts. From the date
hereof until the Effective Time, unless the Company shall otherwise have
consented in writing, Scotts shall, and shall cause its Subsidiaries to,
conduct its business in the ordinary course consistent with past practice and
shall use its best efforts to preserve intact its business organization and
relationships with third parties. Except as contemplated or required by this
Agreement or set forth in Section 7.01 of the Scotts Disclosure Schedule,
Scotts shall not, and shall cause its Subsidiaries not to, do, or propose or
agree to do, any of the following without the prior written consent of the
Company:
(a) adopt or propose any change in its Articles of Incorporation or
Code of Regulations;
(b) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) lease, license or dispose of any assets or property, which assets
or property is material to Scotts and its Subsidiaries, taken as a whole,
except (i) pursuant to existing contracts or commitments or (ii) in the
ordinary course consistent with past practice ;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of Scotts' capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, a material amount of its capital
stock;
(f) agree or commit to do any of the foregoing; or
(g) take or agree or commit to take any action that would make any
representation and warranty of Scotts or Merger Subsidiary hereunder inaccurate
in any respect at, or as of any time prior to the Effective Time.
SECTION 7.02. Access to Information; Confidentiality. (a) From the
date hereof until the Effective Time, Scotts shall afford the Company, its
officers, directors, employees, counsel, financial advisors, auditors and other
authorized representatives (the "Company Representatives") reasonable access to
the offices, properties, books and records of Scotts and Merger Subsidiary,
will furnish to the Company and the Company Representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct Scotts' employees, counsel and financial advisors to cooperate
with the Company in its investigation of the business of Scotts and its
Subsidiaries; provided that no investigation
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pursuant to this Section shall affect any representation or warranty given by
Scotts and Merger Subsidiary to the Company and the Shareholders hereunder.
(b) All information obtained by the Company pursuant to this Section
shall be kept confidential in accordance with the confidentiality agreements
dated as of October 3, 1994, between Scotts and the Company.
SECTION 7.03. Obligations of Merger Subsidiary. Scotts will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 7.04. Other Offers. From the date hereof until the later of
the termination of this Agreement and the Effective Time, neither Scotts nor
any officer, director, employee or other agent of Scotts will, directly or
indirectly, (i) take any action to solicit, initiate or encourage any inquiries
or the making or implementation of any proposal or offer with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, Scotts (a "Scotts Acquisition Proposal"), other than the
transactions contemplated by this Agreement, or (ii) engage in negotiations
with, or disclose any nonpublic information relating to Scotts or afford access
to the properties, books or records of Scotts to, any Person that Scotts
believes may be considering making, or has made, a Scotts Acquisition Proposal.
Scotts will promptly notify the Company upon receipt of any Scotts Acquisition
Proposal or any indication that any Person is considering making a Scotts
Acquisition Proposal or any request for nonpublic information relating to
Scotts or for access to the properties, books or records of Scotts by any
Person that may be considering making, or has made, a Scotts Acquisition
Proposal and will keep the Company fully informed of the status and details of
any such Scotts Acquisition Proposal, indication or request.
SECTION 7.05. Notices of Certain Events. Scotts shall promptly
notify the Company of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause (x)
any representation or warranty contained in this Agreement to be
untrue or inaccurate or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied; and
(iv) any failure of Scotts or Merger Subsidiary to comply
with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder;
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provided, however, that the delivery of any notice pursuant to this Section
shall not limit or otherwise affect the remedies available hereunder to the
Company.
SECTION 7.06. Proxy Statement and Shareholder Vote. (a) As promptly
as practicable after the execution of this Agreement, Scotts shall prepare and
file with the SEC (i) the Scotts Proxy Statement relating to Scotts' 1995
Annual Meeting of Shareholders or a Special Meeting of Shareholders at which
the Scotts Shareholder Consent will be solicited (the "Scotts Shareholder
Meeting"), (ii) a registration statement on Form S-4 in which the Proxy
Statement shall be included as a prospectus, in connection with the
registration under the Securities Act of the Merger Consideration (the
"Registration Statement"). Scotts shall use its best efforts to cause the
Registration Statement to become effective as promptly as practicable, and
shall take all actions required under any applicable federal or state
securities laws in connection with the issuance of the Merger Consideration.
Scotts shall take such action as is necessary to ensure that the Proxy
Statement and the Registration Statement comply with the Exchange Act and the
Securities Act, respectively. As promptly as practicable after review by the
SEC, Scotts shall mail the Scotts Proxy Statement to its shareholders. The
Scotts Proxy Statement shall include the recommendation of the Board of
Directors of Scotts in favor of (i) the amendment of Scotts' Articles of
Incorporation to authorize the Convertible Preferred Stock; (ii) the
acquisition by the Shareholders of more than 33-1/3% (but less than 50%) of
Scotts' voting power, as contemplated by Section 1701.831 of the Ohio Law; and
(iii) the amendment of Scotts' Code of Regulations to implement a classified
Board of Directors consisting of three classes of up to four directors each, to
require a two-thirds vote of Shareholders on certain matters and to implement
certain limitations on the ability of shareholders to call special meetings.
Attached hereto as Annex G is each of the amendments to Scotts' Articles of
Incorporation and Code of Regulations which is proposed to be adopted by the
shareholders of Scotts at the Scotts Shareholder Meeting.
(b) Scotts will ensure that the Scotts Proxy Statement and the
Registration Statement will not, at the time (i) each such document is filed
with the SEC, (ii) each such document is first published, sent or given to
shareholders of Scotts, (iii) the Registration Statement is declared effective
by the SEC, (iv) the Scotts Shareholder Meeting is convened and (v) the
Effective Time occurs, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they are
made, not misleading (except to the extent that any untrue statement or
omission or alleged untrue statement or omission was made or omitted in
reliance upon information furnished to Scotts by the Company or the
Shareholders).
SECTION 7.07. Director and Officer Indemnification. From and after
the Effective Time, Scotts will cause the Surviving Corporation to indemnify
and hold harmless the present and former officers and directors of the
Miracle-Gro Constituent Companies in respect of acts or omissions occurring
prior to the Effective Time to the extent provided under such Miracle-Gro
Constituent Company's certificate of incorporation and by-laws, or equivalent
organizational documents, in effect on the date hereof; provided, that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law, and, provided, further, that such
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indemnification shall not apply to claims made by or on behalf of any
stockholder or former stockholder of any Miracle-Gro Constituent Company.
SECTION 7.08. Employee Benefits. From and after the Effective Time
through the later of December 31, 1995 and such date as the employees of the
Miracle-Gro Constituent Companies commence participation in Scotts' employee
benefits plans, as described in the following sentence (the "Plan Transfer
Date"), Scotts will cause the Surviving Corporation and/or New Miracle-Gro to
provide benefits to the Miracle-Gro Constituent Companies' employees that are
comparable to those provided by the Miracle-Gro Constituent Companies
immediately prior to the Effective Time. From and after the Plan Transfer
Date, all employees of the Surviving Corporation shall become participants in
the employee benefit plans and programs maintained by Scotts for similarly
situated employees of Scotts. Such employee benefit plans that are health
benefit plans shall (i) recognize expenses and claims that were incurred by
such employees in the year in which the Effective Time occurs and recognized
for similar purposes under the Miracle-Gro Constituent Companies' plans as of
the Effective Time, and (ii) provide coverage (without any required waiting
period) for pre- existing health conditions to the extent covered under the
applicable plans or programs of the Miracle-Gro Constituent Companies' plans as
of the Effective Time. In addition, such employee benefit plans and programs
shall credit such employees with years of service with the Miracle-Gro
Constituent Companies for all plan purposes; provided, however, that no such
crediting shall be required to the extent that it would result in a duplication
of benefits. Scotts will cause New Miracle-Gro, as successor corporation, to
perform the obligations of the Company under the agreements set forth in
Section 7.08 of the Miracle-Gro Disclosure Schedule.
SECTION 7.09. Employee Stock Options. Subject to the fiduciary
duties of Scotts' Board of Directors and appropriate authorization therefrom,
Scotts agrees to use reasonable efforts to fund the issuance of Scotts Common
Stock pursuant to the exercise of employee stock options granted after the date
hereof through shares of Scotts Common Stock held as treasury stock, which are
acquired after the date hereof, or through open market or privately negotiated
repurchases of Scotts Common Stock.
ARTICLE VIII
COVENANTS OF SCOTTS, THE MIRACLE-GRO
CONSTITUENT COMPANIES AND THE SHAREHOLDERS
The parties hereto agree that:
SECTION 8.01. Best Efforts. Subject to the terms and conditions of
this Agreement, each party will use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as possible.
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SECTION 8.02. Certain Filings. The Miracle-Gro Constituent Companies
and Scotts shall cooperate with one another (a) in connection with the
preparation of the Scotts Proxy Statement and the Registration Statement
(including, but not limited to, the preparation of any financial statements or
pro forma financial statements required to be included therein), and (b) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (c) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Scotts Proxy Statement
or the Registration Statement and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 8.03. Public Announcements. Scotts and the Company will
consult with each other before issuing any press release or otherwise making
any public statement with respect to this Agreement or any transaction
contemplated herein and, except as may be required by applicable law or any
listing agreement with any national securities exchange, Scotts will not issue
any such press release or make any such public statement prior to such
consultation and no Miracle-Gro Constituent Company will issue any such press
release or make any such public statement without the prior written consent of
Scotts, which shall not be unreasonably withheld.
SECTION 8.04. Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
SECTION 8.05. Tax Matters. (a) The Shareholders shall be solely
responsible for preparing and filing on a timely basis all Tax Returns with
respect to the income, business, assets, operations, activities, status or
other matters of the Miracle-Gro Constituent Companies for all taxable periods
ending at or before the Effective Time. The Shareholders shall be solely
responsible for and shall pay on a timely basis all taxes due thereon.
(b) Scotts shall be solely responsible for preparing and filing on a
timely basis all Tax Returns with respect to the income, business, assets,
operations, activities, status or other matters of the Company for all taxable
periods beginning after the Effective Time. Scotts shall be solely responsible
for and shall pay on a timely basis all taxes due thereon.
(c) The Shareholders and Scotts shall jointly prepare all Tax Returns
with respect to the income, business, assets, operations, activities, status or
other matters of the Miracle-Gro Constituent Companies for all taxable periods
beginning before and ending after the Effective Time ("Straddle Periods"). The
Shareholders and Scotts shall allocate any liability for taxes
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relating to Straddle Periods on the basis of an interim closing of the books as
of the Effective Time.
(d) The Shareholders and Scotts agree to furnish to each other, upon
written request, as promptly as practicable, such information and reasonable
assistance relating to the Miracle-Gro Constituent Companies as is necessary
for the filing of any Tax Return required to be filed after the Effective Time.
The Shareholders and Scotts also agree to cooperate with each other in the
conduct of any audit or other proceeding involving one or more of the
Miracle-Gro Constituent Companies or any successor corporation. In any such
case, each party shall use its best efforts to cause its financial advisors,
auditors and other authorized representatives to cooperate therewith.
SECTION 8.06. Tax Treatment. (a) The Company and the Shareholders
agree to accept the opinion of Skadden, Arps, Slate, Meagher & Flom,
substantially in the form of Annex H hereto, in satisfaction of the condition
set forth in Section 9.03(iv). The Company agrees that the representations and
warranties set forth in the officer's certificate with respect to each of the
Miracle-Gro Companies, which certificates are attached to such Annex H, are
true and correct in all material respects as of the date hereof, and, assuming
such representations and warranties continue to be true and correct in all
material respects immediately prior to the Effective Time and that an
authorized officer of Scotts and Merger Subsidiary executes the officer's
certificate of Scotts and Merger Subsidiary attached to such Annex H, agree to
cause an authorized officer of each of the Miracle-Gro Constituent Companies to
execute such officer's certificates.
(b) None of the Shareholders, the Miracle-Gro Constituent Companies,
Scotts or Merger Subsidiary has taken, or will take, any action or omitted to
take any action which would (i) cause the representations and warranties in the
officer's certificates (attached to Annex H) not to be true and correct in all
material respects and (ii) cause any of the Merger Transactions to fail to
qualify as a reorganization under Section 368(a) of the Code or otherwise
jeopardize the status of any of the Merger Transactions as a tax-free
reorganization within the meaning of Section 368(a) of the Code. The
Shareholders and the Miracle-Gro Constituent Companies agree to use their best
efforts to cause each of the Merger Transactions to qualify as tax-free
reorganizations within the meaning of Section 368(a) of the Code.
(c) Scotts agrees to cause the Surviving Corporation and New
Miracle-Gro not to take any action or omit to take any action at or after the
Effective Time if Scotts reasonably believes after consultation with counsel
that such action or inaction, respectively, would jeopardize the status of any
of the Merger and the Subsequent Mergers as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
SECTION 8.07. Tax Gross-Up. (a) Notwithstanding anything herein to
the contrary, the parties hereby agree that prior to the Effective Time the
Miracle-Gro Constituent Companies shall distribute to the Shareholders an
amount equal to $22 million. The Company may borrow funds to finance the
payment of such distribution. Unless specifically requested by the
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Shareholder Representative, (i) no funds or assets will be supplied by Scotts
directly or indirectly to repay such loan, and (ii) in the event that the
Surviving Corporation determines that it does not have sufficient funds to
repay such loan, it shall use its best efforts to borrow funds for such
repayment without a guarantee or other credit support from Scotts.
(b) In the event that pursuant to Section 1366 of the Code, the
aggregate taxable income of the Shareholders with respect to the aggregate
income of the Miracle-Gro Constituent Companies for the fiscal year commencing
October 1, 1994, and ending at the Effective Time exceeds $22 million by up to
$1 million (such excess being the "Excess Amount"), Scotts shall cause New
Miracle-Gro to distribute to the Shareholders an additional amount of cash
equal to 46% of such Excess Amount. The foregoing distribution shall be made
so as to qualify under Section 1371(e)(1) of the Code and, in any event, shall
be made not later than 30 days following the date on which the said aggregate
income of the Miracle-Gro Constituent Companies, or any portion thereof, is
determined to exceed $22 million.
(c) In the event that the distribution contemplated by Section
8.07(b) does not qualify as a distribution under Section 1371(e)(1) of the
Code, Scotts shall pay the Shareholders an amount which, after the payment of
all Taxes due from the Shareholders with respect to such amount, shall equal
46% of the Excess Amount. The amount to be paid to the Shareholders pursuant
to this subsection shall not exceed $852,000.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
respective obligations of the Company, the Shareholders, Scotts and Merger
Subsidiary to consummate the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived, in whole or in part,
to the extent permitted by this Agreement and by applicable law:
(i) Scotts shall have received the consent of the Requisite
Banks (as defined in the Third Amended and Restated Credit Agreement
dated as of April 7, 1992, as amended (the "Credit Agreement"), among
Scotts, the Banks listed therein and Chemical Bank, as Agent) to the
Merger Transactions and the other transactions contemplated herein,
and the Credit Agreement provisions relating to restricted payments,
operating and financial condition ratios and events of default shall
have been appropriately amended in contemplation of the transactions
contemplated by this Agreement, all of which shall be reasonably
satisfactory to the Miracle-Gro Constituent Companies;
(ii) Scotts shall have received the consent to the Merger
Transactions and the other transactions contemplated herein by the
holders of a majority of aggregate principal amount of Scotts'
outstanding 9-7/8% Senior Subordinated Notes due August 1, 2004,
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pursuant to the terms of the Indenture dated as of June 1, 1994, as
supplemented (the "Notes Indenture"), between Scotts and Chemical
Bank, as trustee;
(iii) Scotts' shareholders shall have approved the
acquisition by the Shareholders of more than 33-1/3% (but less than
50%) of Scotts' voting power, in accordance with the provisions of
Section 1701.831 of Ohio Law;
(iv) shareholders representing more than 66-2/3% of the
outstanding Scotts Common Stock shall have approved the amendment of
Scotts' Articles of Incorporation to authorize the issuance of the
Convertible Preferred Stock;
(v) shareholders representing more than a majority of the
outstanding Scotts Common Stock shall have approved the amendment of
Scotts' Code of Regulations to authorize a classified Board of
Directors;
(vi) the applicable waiting period under the HSR Act relating
to the Merger shall have expired or been terminated;
(vii) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger;
(viii) other than the filing of certificates of merger and/or
other merger documents in accordance with New Jersey Law and Ohio Law,
all authorizations, consents, waivers, orders or approvals required to
be obtained, and all filings, notices or declarations required to be
made, by the Company, Scotts and Merger Subsidiary prior to the
consummation of the Merger shall have been obtained from, and made
with, all required governmental or regulatory authorities except for
such authorizations, consents, waivers, orders, approvals, filings,
notices or declarations the failure of which to obtain or make would
not, at or after the Effective Time, individually or in the aggregate,
have a Company Material Adverse Effect or a Scotts Material Adverse
Effect; and
(ix) the Registration Statement shall have been declared
effective under the Securities Act and there shall be no stop order or
threatened stop order with respect thereto.
SECTION 9.02. Conditions to the Obligations of Scotts and Merger
Subsidiary. The obligations of Scotts and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
this Agreement and by applicable law:
(i) the Miracle-Gro Constituent Companies and the
Shareholders shall have performed in all material respects their
respective agreements and covenants required by this Agreement to be
performed by them at or prior to the Effective Time; the
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representations and warranties of the Miracle-Gro Constituent
Companies and the Shareholders contained in this Agreement and in any
certificate delivered by any Miracle-Gro Constituent Company or
Shareholder pursuant hereto shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such
time, and Scotts shall have received a certificate signed by the Chief
Executive Officer and Chief Financial Officer of the Company to the
foregoing effect;
(ii) since the date of this Agreement, there shall have been
no change, occurrence or circumstance in the business, results of
operations or condition (financial or otherwise) of the Miracle-Gro
Constituent Companies having or reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect,
and Scotts shall have received a certificate of the Chief Executive
Officer of the Company to such effect;
(iii) no court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the
consummation of the Merger or the effective operation of the business
of the Company after the Effective Time;
(iv) Scotts shall have received Employment Agreements
substantially in the forms attached hereto as Annex F-1, F-2 and F-3
executed by Horace Hagedorn, John Kenlon and James Hagedorn,
respectively; and
(v) Scotts shall have received all documents it may
reasonably request relating to the existence of the Company and the
authority of the Company to enter to, deliver and perform this
Agreement, all in form and substance satisfactory to Scotts.
SECTION 9.03. Conditions to the Obligations of the Miracle-Gro
Constituent Companies and the Shareholders. The obligations of the Miracle-Gro
Constituent Companies and the Shareholders to consummate the Merger
Transactions are subject to the satisfaction of the following further
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by this Agreement and by applicable law:
(i) Scotts and Merger Subsidiary shall have performed in all
material respects their respective agreements and covenants required
by this Agreement to be performed by them at or prior to the Effective
Time; the representations and warranties of Scotts and Merger
Subsidiary contained in this Agreement and in any certificate
delivered by Scotts or Merger Subsidiary pursuant hereto shall be true
and correct in all material respects at and as of the Effective Time
as if made at and as of such time, and the Company shall have received
a certificate signed by the Chief Executive Officer and Chief
Financial Officer of Scotts to the foregoing effect;
(ii) since the date of this Agreement, there shall have been
no change, occurrence or circumstance in the business, results of
operations or condition (financial or otherwise) of Scotts having or
reasonably likely to have, individually or in the aggregate, a Scotts
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Material Adverse Effect, and the Company shall have received a
certificate of the Chief Executive Officer of Scotts to such effect;
(iii) no court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the
consummation of the Merger or the effective operation of the business
of Scotts after the Effective Time;
(iv) the Company and the Shareholders shall have received the
opinion of Skadden, Arps, Slate, Meagher & Flom substantially in the
form attached hereto as Annex H to the effect that each of the Merger
and each of the Subsequent Mergers constitutes a tax-free
reorganization pursuant to Section 368(a) of the Code; and
(v) the Company shall have received all documents it may
reasonably request relating to the existence of Scotts and Merger
Subsidiary and the authority of Scotts and Merger Subsidiary to enter
to, deliver and perform this Agreement, all in form and substance
satisfactory to the Company.
ARTICLE X
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the Shareholders or of the
shareholders of Scotts):
(a) by mutual written consent of the parties hereto;
(b) by any party if the Merger has not been consummated by
September 30, 1995;
(c) by any party if, prior to the Effective Time, the Market
Price (as defined in Section 6.01) of Scotts Common Stock shall be
less than the "Target Amount" for ten consecutive trading days, the
"Target Amount" being the lesser of $12 per share and the amount
determined by multiplying $12 by a percentage equal to 100% minus the
percentage decline, if any, in the Standard & Poors 500 Index (as
reported by The Wall Street Journal) from the date of this Agreement
to the date of the first day of such ten consecutive day trading
period;
(d) by any party if there shall be any law or regulation that
makes consummation of the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining Scotts or any
Miracle-Gro Constituent Company from consummating
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any of the Merger Transactions is entered and such judgment,
injunction, order or decree shall become final and nonappealable; and
(e) by Scotts, upon a breach of any representation, warranty,
covenant or agreement on the part of any Miracle-Gro Constituent
Company or any Shareholder set forth in this Agreement, or if any
representation or warranty of the Miracle-Gro Constituent Companies
and the Shareholders shall have become untrue, in either case such
that the conditions set forth in Section 9.02 would be incapable of
being satisfied by September 30, 1995 (or as otherwise extended);
provided that, in any case, a willful breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of
this Section 10.01(e);
(f) by the Miracle-Gro Constituent Companies and the
Shareholders, upon a breach of any representation, warranty, covenant
or agreement on the part of Scotts or Merger Subsidiary set forth in
this Agreement, or if any representation or warranty of Scotts or
Merger Subsidiary shall have become untrue, in either case such that
the conditions set forth in Section 9.03 would be incapable of being
satisfied by September 30, 1995 (or as otherwise extended); provided
that, in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this
Section 10.01(f); and
(g) by any party hereto if the Scotts' Shareholders shall
fail to approve the acquisition contemplated by Section 9.01(iii) at
the Scotts Shareholder Meeting.
SECTION 10.02. Effect of Termination. If this Agreement is
terminated pursuant to Section 10.01, this Agreement shall become void and of
no effect with no liability on the part of any party hereto, except that the
agreements contained in Sections 5.02, 7.02 and 12.03 shall survive the
termination hereof; provided, however, that nothing herein shall relieve any
party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival. The representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive until
the Effective Time and shall thereupon terminate and be of no further force and
effect; provided, that the representations and warranties contained in Sections
3.12 and 4.11 shall survive until expiration of the applicable statutory period
of limitations (giving effect to any waiver, mitigation or extension thereof),
if later. Notwithstanding the preceding sentence, any representation or
warranty in respect of which indemnity may be sought under Section 11.02 or
11.03 shall survive the time at which it would
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otherwise terminate pursuant to the preceding sentence, if notice of the
specific inaccuracy or breach thereof giving rise to such right to indemnity
shall have been given to the party against whom such indemnity may be sought
prior to such time.
SECTION 11.02. Indemnification. (a) The Company and each Shareholder
hereby jointly and severally indemnify Scotts against and agree to hold it
harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
(collectively, "Loss") incurred or suffered by Scotts arising out of any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by the Company or the Shareholders pursuant to this Agreement.
(b) Scotts hereby indemnifies the Company and the Shareholders
against and agrees to hold them harmless from any and all Loss incurred or
suffered by the Company and/or the Shareholders arising out of any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by Scotts pursuant to this Agreement.
SECTION 11.03. Procedures. (a) The party seeking indemnification
under Section 11.02 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
in respect of which indemnity may be sought under such Section. The
Indemnifying Party may, and at the request of the Indemnified Party shall,
participate in and control the defense of any such suit, action or proceeding
at its own expense. The Indemnifying Party shall not be liable under Section
11.02 for any settlement effected without its consent of any claim, litigation
or proceeding in respect of which indemnity may be sought hereunder; provided
that such consent is not unreasonably withheld.
(b) The Indemnified Party shall cooperate fully in all aspects of any
matter for which indemnity is sought pursuant to this Article XI with respect
to an action brought by a third party, including, in such case, by providing
reasonable access to employees and officers (as witnesses or otherwise) and
other information.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy,
telex or similar writing) and shall be given,
if to Scotts or Merger Subsidiary, to:
The Scotts Company
14111 Scottslawn Road
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Marysville, OH 43041
Attn.: Craig D. Walley, General Counsel
Telecopy: (513) 644-7072
with a copy to:
G. Robert Lucas, II
Vorys, Sater, Seymour and Pease
52 East Gay Street
Columbus, OH 43215
Telecopy: (614) 464-6350
if to the Company, the Shareholders or the Shareholder Representative,
to:
Stern's Miracle-Gro Products, Inc.
800 Port Washington Boulevard
Port Washington, NY 11050
Attn.: John Kenlon, President
Telecopy: (516) 883-6563
with a copy to:
Horace Hagedorn
800 Port Washington Boulevard
Port Washington, NY 11050
Telecopy: (516) 883-6563
with a further copy to:
J. Michael Schell
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Telecopy: (212) 735-2000
and a further copy to:
Jonathan R. Karis
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Telecopy: (617) 951-1295
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or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the appropriate confirmation is received or (ii) if given by any
other means, when delivered at the address specified in this Section.
SECTION 12.02. Amendments; No Waivers. Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the parties hereto or in the case of a waiver, by the party against whom the
waiver is to be effective; provided that after the adoption of this Agreement
by the shareholders of Scotts, no such amendment or waiver shall, without the
further approval of such shareholders, alter or change (i) the amount or kind
of consideration to be received in exchange for any shares of capital stock of
the Company, (ii) any term of the Articles of Incorporation of the Surviving
Corporation or (iii) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of
capital stock of Scotts.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.03. Expenses; Taxes. All costs and expenses incurred in
connection with this Agreement shall be paid by Scotts in the case of the costs
and expenses of Scotts and Merger Subsidiary, and by the Shareholders in the
case of the costs and expenses of the Miracle-Gro Constituent Companies and the
Shareholders which have not been paid at the Effective Time. Notwithstanding
the foregoing, all applicable sales, use or transfer taxes, if any, and all
capital gains or income taxes of any of the Shareholders or any of the
Miracle-Gro Constituent Companies, in each case, that may be due and payable as
a result of the Merger or the transactions contemplated by this Agreement,
whether levied on any Miracle-Gro Constituent Company, any of the Shareholders,
Scotts or Merger Subsidiary, shall be borne by the Shareholders.
SECTION 12.04. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely
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as possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
SECTION 12.06. Entire Agreement. This Agreement (together with the
exhibits and annexes, the Company Disclosure Schedule, the Scotts Disclosure
Schedule and the other documents delivered pursuant hereto) and the
confidentiality agreements between the Company and Scotts constitute the entire
agreement of the parties and supersede all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 12.07. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the written consent of the other parties.
SECTION 12.08. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Ohio.
SECTION 12.09. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
MIRACLE-GRO CONSTITUENT COMPANIES:
STERN'S MIRACLE-GRO PRODUCTS, INC.
By /s/ Horace Hagedorn
-----------------------------------------
Title: Chairman and Chief Executive Officer
STERN'S NURSERIES, INC.
By /s/ Horace Hagedorn
-----------------------------------------
Title: Chief Executive Officer
MIRACLE-GRO LAWN PRODUCTS INC.
By /s/ John Kenlon
-----------------------------------------
Title: President
MIRACLE-GRO PRODUCTS LIMITED
By /s/ James Hagedorn
-----------------------------------------
Title: Executive Vice President
SHAREHOLDERS:
/s/ Horace Hagedorn
--------------------------------------------
HORACE HAGEDORN
/s/ James Hagedorn
--------------------------------------------
JAMES HAGEDORN
/s/ Katherine Hagedorn Littlefield
--------------------------------------------
KATHERINE HAGEDORN LITTLEFIELD
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/s/ Paul Hagedorn
--------------------------------------------
PAUL HAGEDORN
/s/ Peter Hagedorn
--------------------------------------------
PETER HAGEDORN
/s/ Robert Hagedorn
--------------------------------------------
ROBERT HAGEDORN
/s/ Susan Hagedorn
--------------------------------------------
SUSAN HAGEDORN
/s/ John Kenlon
--------------------------------------------
JOHN KENLON
SCOTTS:
THE SCOTTS COMPANY
By /s/ Tadd C. Seitz
-----------------------------------------
Title: Chief Executive Officer
MERGER SUBSIDIARY:
ZYX CORPORATION, an Ohio corporation
By /s/ Theodore J. Host
-----------------------------------------
Title: President
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SCHEDULE 2.03
OFFICERS OF SURVIVING CORPORATION
AND NEW MIRACLE-GRO
Horace Hagedorn - Chairman and Chief Executive Officer
John Kenlon - President and Chief Operating Officer
James Hagedorn - Executive Vice President
Craig D. Walley - Secretary
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ANNEX A
TERMS OF
CLASS A CONVERTIBLE PREFERRED STOCK
1. Designation. This series of Preferred Stock shall be designated
Class A Convertible Preferred Stock, without par value (the "Class A
Preferred").
2. Authorized Number. The number of shares constituting the Class A
Preferred shall be One Hundred Ninety-Five Thousand (195,000) shares.
3. Dividends. (a) The holders of the Class A Preferred shall be
entitled to receive, ratably with the holders of any other series of Preferred
Stock with Parity Rights (as defined below) as to dividends based on their
respective dividend rates, annual cumulative dividends in cash on each
outstanding share of Class A Preferred at the rate of $50.00 per share per
annum. Such cumulative dividends shall be paid in equal amounts (other than
with respect to the initial dividend period) quarterly on June 30, September
30, December 31 and March 31 of each year (unless such day is not a business
day, in which event on the next business day) as declared by the Board of
Directors to the extent legally permitted, to holders of record as they appear
on the register for the Class A Preferred on the June 15, September 15,
December 15 and March 15 immediately preceding the relevant Dividend Payment
Date (as hereinafter defined), out of any funds at the time legally available
therefor, shall accrue until so paid from the date of issuance of the
applicable shares of Class A Preferred, and shall be deemed to accrue from day
to day, whether or not declared. A quarterly dividend period shall begin on
the day following each June 30, September 30, December 31 and March 31 (each a
"Dividend Payment Date," whether or not a dividend is paid on such date) and
end on the next succeeding Dividend Payment Date. Notwithstanding the
foregoing, the first quarterly dividend period shall commence on the date of
issue, and such dividend shall be paid on June 30, 1995 for the actual number
of days in such period. If dividends shall not have been paid, or declared and
set apart for payment, upon all outstanding shares of Class A Preferred at the
aforesaid times and rates, such deficiency shall be cumulative in full. Any
accumulation of dividends shall not bear interest.
(b) No dividends or other distribution (other than dividends payable
in Common Stock), and no redemption, purchase or other acquisition for value
(other than redemptions, purchases or acquisitions payable in Common Stock or
repurchases of Common Stock from employees of the Company pursuant to
obligations existing as of the date hereof or upon foreclosure pursuant to
loans existing as of the date hereof to employees of the Company secured by
Common Stock), shall be made with respect to the Common Stock or any other
class or series of the Company's capital stock ranking junior to the Class A
Preferred with respect to dividends or liquidation preferences until
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cumulative dividends on the Class A Preferred in the full amounts as set forth
above for all dividend periods ending, and all amounts payable upon redemption
of Class A Preferred, on or prior to the date on which the proposed dividend or
distribution is paid, or the proposed redemption, purchase or other acquisition
is effected, have been declared and paid or set apart for payment.
(c) (i) If on any Dividend Payment Date all or any portion of the
dividend payable on such date is not so paid and at such time all or any
portion of the dividend payable on the next preceding Dividend Payment Date
remains in arrears, then from such second Dividend Payment Date (herein the
commencement of a default period) until all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current quarterly dividend
period on all shares of Class A Preferred then outstanding shall have been
declared and paid, all holders of Class A Preferred, voting separately as a
class, shall have the right to elect three directors to the Company's Board of
Directors ("Directors").
(ii) Such Directors shall be designated by the Shareholder
Representative (as defined in the Merger Agreement) and shall be appointed to
the Board, to fill vacancies newly created for such purpose, immediately upon
such designation. After the holders of the Class A Preferred shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Class A Preferred as herein
provided.
(iii) Immediately upon the expiration of a default period, (x) the
right of the holders of Class A Preferred as a class to elect Directors
pursuant to this Section 3(c) shall cease, (y) the term of any Directors
elected by the holders of Class A Preferred as a class pursuant to this Section
3(c) shall terminate, and (z) the number of Directors shall be such number as
was in effect immediately prior to the increase contemplated by this Section
3(c).
4. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Company, either voluntary or involuntary,
distributions to the shareholders of the Company shall be made in the following
manner:
(a) The holders of the Class A Preferred shall be entitled to
receive, ratably with the holders of any other series of Preferred Stock with
Parity Rights (as defined below) as to liquidation preferences based on their
respective preference amounts (which, in the case of the Class A Preferred,
shall include any amounts owing in respect of accrued and unpaid dividends),
prior and in preference to any distribution of any of the assets or funds of
the Company to the holders of the Common Stock (or any other securities of the
Company ranking junior to the Class A Preferred as to liquidation preferences),
the preference amount (in cash) of $1,000 per share for each share of Class A
Preferred then held by them plus an amount equal to all accrued but unpaid
dividends (whether or not
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declared) on the Class A Preferred to the date of liquidation, dissolution or
winding up. If the assets and funds thus distributed among the holders of the
Class A Preferred and of any other series of Preferred Stock with Parity Rights
as to liquidation preferences are insufficient to permit the payment to such
holders of the full preferential amount described above, then the entire assets
and funds of the Company legally available for distribution shall be
distributed among the holders of the Class A Preferred and of any other series
of Preferred Stock with Parity Rights as to liquidation preferences in the
proportion that the aggregate preferential amount of shares of Class A
Preferred and of any other series of Preferred Stock with Parity Rights as to
liquidation preferences held by each such holder bears to the aggregate
preferential amount of all shares of Class A Preferred and of any other series
of Preferred Stock with Parity Rights as to liquidation preferences. After
payment has been made to the holders of the Class A Preferred and of any other
series of Preferred Stock with Parity Rights as to liquidation preferences of
the full amounts to which they are entitled, no further amounts shall be paid
with respect to the Class A Preferred, and the remaining assets of the Company
shall be distributed among the holders of the Common Stock (and other junior
securities with regard to liquidation preferences) in accordance with the
Restated Articles of Incorporation and applicable law.
(b) For purposes of this Section 4, a merger or consolidation of the
Company with or into any other corporation or corporations in which the Company
is not the surviving corporation, or a voluntary sale of all or substantially
all of the assets of the Company, shall not be treated as a liquidation,
dissolution or winding up of the Company (unless in connection therewith, the
liquidation, dissolution or winding up of the Company is specifically
approved), but shall be treated as provided in Section 7(e) hereof.
5. Provisions Generally Applicable to Dividends and Liquidation.
(a) The term "Parity Rights," as used in this Article FOURTH of the
Restated Articles of Incorporation, shall mean dividend rights and liquidation
preferences of any series of Preferred Stock of the Company which have
preferences upon any liquidation, dissolution, or winding up of the Company or
rights with respect to the declaration, payment and setting aside of dividends
on a parity with those of the Class A Preferred.
(b) Except as otherwise permitted by the Agreement and Plan of Merger
dated as of January 26, 1995 among Stern's Miracle-Gro Products, Inc., Stern's
Nurseries, Inc., Miracle-Gro Lawn Products Inc., Miracle-Gro Products Limited,
the Shareholders listed therein, the Company and ZYX Corporation (the "Merger
Agreement"), the Company will not, by amendment of its Restated Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of
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Sections 3 and 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the dividend and liquidation rights of the
holders of the Class A Preferred against impairment; provided, however, that
nothing herein will prevent the Company from creating any new series of
Preferred Stock with higher dividend rates or liquidation payments so long as
the priority of such rights is not senior to the rights of the Class A
Preferred.
6. Voting Rights. Except as otherwise required by law, the holder of
each share of Class A Preferred shall be entitled to the number of votes equal
to the number of shares of Common Stock into which such share of Class A
Preferred could be converted at the record date for determination of the
shareholders entitled to vote on such matters, such votes to be counted
together with all other shares of stock of the Company having general voting
power and not separately as a class or series. Holders of Class A Preferred
shall be entitled to receive the same notice of any shareholders' meeting as is
provided to holders of Common Stock. Fractional votes by the holders of Class
A Preferred shall not, however, be permitted, and any fractional voting rights
shall (after aggregating all shares into which shares of Class A Preferred held
by each holder could be converted) be rounded to the nearest whole number. The
Company will, or will cause the registrar to, transmit to the registered
holders of the Class A Preferred all reports and communications from the
Company that are generally mailed to holders of its Common Stock.
7. Conversion. The holders of the Class A Preferred have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Class A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share and prior to the close of business of the Company on the
business day next preceding any date set for the redemption thereof (provided
that funds sufficient to redeem all shares to be redeemed on such date have
been paid or made available for payment as described in Section 8(b)(iii)), at
the office of the Company or any transfer agent for the Class A Preferred, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1,000 by the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") shall initially be $19 per share of Common Stock. Such initial
Conversion Price shall be subject to adjustment as hereinafter provided.
(b) Accrued Dividends and Fractional Shares. Dividends shall cease
to accrue on shares of Class A Preferred surrendered for conversion into Common
Stock; provided, however, that any dividends (whether or not declared) upon
such shares which were accrued as of but not paid on or before the Dividend
Payment Date immediately preceding the conversion date shall be paid in cash
upon such conversion or as soon thereafter as permitted by law.
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No fractional shares of Common Stock shall be issued upon conversion
of Class A Preferred. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall, after aggregation of all
fractional share interests held by each holder, pay cash equal to such
remaining fractional interest multiplied by the Market Price at the time of
conversion.
(c) Mechanics of Conversion. Before any holder of Class A Preferred
shall be entitled to convert the same into full shares of Common Stock and to
receive certificates therefor, such holder shall surrender the certificate or
certificates for the Class A Preferred to be converted, duly endorsed, at the
office of the Company or of any transfer agent for the Class A Preferred, and
shall give written notice to the Company at such office that such holder elects
to convert the same. The Company shall, as soon as practicable after such
delivery, issue and deliver at such office to such holder of Class A Preferred
(or to any other person specified in the notice delivered by such holder), a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to the holder
for any cash amounts payable as the result of a conversion into fractional
shares of Common Stock. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Class A Preferred to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. In case any certificate for shares of Class A
Preferred shall be surrendered for conversion of only a part of the shares
represented thereby, the Company shall deliver at such office to or upon the
written order of the holder thereof, a certificate or certificates for the
number of shares of Class A Preferred represented by such surrendered
certificate which are not being converted. Notwithstanding the foregoing, the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
Class A Preferred are either delivered to the Company or its transfer agent, or
the holder notifies the Company or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
with such certificates. The issuance of certificates for shares of Common
Stock issuable upon conversion of shares of Class A Preferred shall be made
without charge to the converting holder for any tax imposed in respect of the
issuance thereof; provided that the Company shall not be required to pay any
tax which may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the holder of the
shares of Class A Preferred being converted.
(d) Effects of Certain Events.
(i) Common Stock Dividends, Subdivisions or Combinations. In case
the Company shall (A) pay or make a dividend or other distribution to all
holders of its Common Stock in shares of its Common Stock, (B) subdivide, split
or reclassify the
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outstanding shares of its Common Stock into a larger number of shares or (C)
combine or reclassify the outstanding shares of its Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the holder of each outstanding share of Class A
Preferred shall thereafter be entitled to receive upon the conversion of such
share the number of shares of Common Stock which such holder would have owned
and been entitled to receive had such shares of Class A Preferred been
converted immediately prior to the happening of any of the events described
above or, in the case of a stock dividend or other distribution, prior to the
record date for determination of shareholders entitled thereto. An adjustment
made pursuant to this clause (i) shall become effective immediately after such
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, split, combination or
reclassification.
(ii) Distributions of Assets or Securities Other Than Common Stock.
In case the Company shall, by dividend or otherwise, distribute to all holders
of its Common Stock shares of any of its capital stock (other than Common
Stock), rights or warrants to purchase any of its securities (other than those
referred to in (iii) below), cash (other than any regular quarterly or
semi-annual dividend which the Board of Directors of the Company determines),
other assets or evidences of its indebtedness, then in each such case the
Conversion Price shall be adjusted by multiplying the Conversion Price in
effect immediately prior to the date of such dividend or distribution by a
fraction, of which the numerator shall be the Average Market Price per share of
Common Stock at the record date for determining shareholders entitled to such
dividend or distribution less the fair market value (as determined in good
faith by the Board of Directors) of the portion of the securities, cash, assets
or evidences of indebtedness so distributed applicable to one share of Common
Stock, and of which the denominator shall be such Average Market Price per
share. An adjustment made pursuant to this clause (ii) shall become effective
immediately after such record date.
(iii) Below Market Distributions or Issuances. In case the Company
shall issue Common Stock (or rights, warrants or other securities convertible
into or exchangeable or exercisable for shares of Common Stock) to all holders
of Common Stock at a price per share (or having an effective exercise, exchange
or conversion price per share) less than the Average Market Price per share of
Common Stock at the record date for the determination of shareholders entitled
to receive such Common Stock (or rights, warrants or other securities
convertible into or exchangeable or exercisable for shares of Common Stock),
then in each such case the Conversion Price shall be adjusted by multiplying
the Conversion Price in effect immediately prior to the date of issuance of
such Common Stock (or rights, warrants or other securities) by a fraction, the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding on the date of such issuance (without giving effect to any such
issuance) and (B) the number of shares which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so
issued (or into or for which such rights, warrants or other securities are
convertible, exchangeable or exercisable) would purchase at such Average
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Market Price, and the denominator of which shall be the sum of (A) the number
of shares of Common Stock outstanding on the date of such issuance (without
giving effect to any such issuance) and (B) the number of additional shares of
Common Stock so issued (or into or for which such rights, warrants or other
securities are convertible, exchangeable or exercisable). An adjustment made
pursuant to this clause (iii) shall become effective immediately after the
record date for determination of shareholders entitled to receive or purchase
such Common Stock (or rights, warrants or other securities convertible into or
exchangeable or exercisable for shares of Common Stock). For purposes of this
clause (iii), the issuance of any options, rights or warrants or any shares of
Common Stock (whether treasury shares or newly issued shares) pursuant to any
employee (including consultants and directors) benefit or stock option or
purchase plan or program of the Company shall not be deemed to constitute an
issuance of Common Stock or options, rights or warrants to which this clause
(iii) applies. Notwithstanding anything herein to the contrary, no further
adjustment to the Conversion Price shall be made (i) upon the issuance or sale
of Common Stock upon the exercise of any rights or warrants or (ii) upon the
issuance or sale of Common Stock upon conversion or exchange of any convertible
securities, if any adjustment in the Conversion Price was made or required to
be made upon the issuance or sale of such rights, warrants or securities.
(iv) Repurchases. In case at any time or from time to time the
Company or any subsidiary thereof shall repurchase, by self tender offer or
otherwise, any shares of Common Stock of the Company at a weighted average
purchase price in excess of the Average Market Price on the business day
immediately prior to the earliest of the date of such repurchase, the
commencement of an offer to repurchase or the public announcement of either
(such date being referred to as the "Determination Date"), the Conversion Price
in effect as of such Determination Date shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of which shall be (A) the product
of (x) the number of shares of Common Stock outstanding on such Determination
Date and (y) the Average Market Price of the Common Stock on such Determination
Date minus (B) the aggregate purchase price of such repurchase and the
denominator of which shall be the product of (x) the number of shares of Common
Stock outstanding on such Determination Date minus the number of shares of
Common Stock repurchased by the Company or any subsidiary thereof in such
repurchase and (y) the Average Market Price of the Common Stock on such
Determination Date. For purposes of this clause (iv), the repurchase or
repurchases by the Company or any subsidiary thereof within any 12 month period
of not more than 15% of the shares of Common Stock outstanding as of the first
date of such period, at a price not in excess of 120% of the Average Market
Price as of the Determination Date of any such repurchase, shall not be deemed
to constitute a repurchase to which this clause (iv) applies. An adjustment
made pursuant to this clause (iv) shall become effective immediately after the
effective date of such repurchase.
(e) Certain Reorganizations. In the event of any change,
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company (other than any reclassification referred to in
Section 7(d)(i)), whether pursuant
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to a merger, consolidation, reorganization or otherwise, or the sale or other
disposition of all or substantially all of the assets and properties of the
Company, the shares of Class A Preferred shall, after such merger,
consolidation, reorganization or other transaction, sale or other disposition,
be convertible into the kind and number of shares of stock or other securities
or property, of the Company or otherwise, to which such holder would have been
entitled if immediately prior to such event such holder had converted its
shares of Class A Preferred into Common Stock at the Conversion Price in effect
as of the consummation of such event. The provisions of this Section 7(e)
shall similarly apply to successive changes, reclassifications, conversions,
exchange or cancellations.
(f) No Impairment. Except as permitted by the Merger Agreement, the
Company will not, by amendment of its Restated Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 7 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Class A Preferred against
impairment.
(g) Calculation of Adjustments. No adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this subsection (g) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 7 shall be made by the Company and shall be
made to the nearest cent or to the nearest one hundredth of a share, as the
case may be. Anything in this Section 7 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Conversion Price, in
addition to those required by this Section 7, as it in its sole discretion
shall determine to be advisable in order that any stock dividends, subdivision
of shares, distribution of rights to purchase stock or securities, or a
distribution of securities convertible into or exchangeable for stock hereafter
made by the Company to its shareholders shall not be taxable.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 7,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class A Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any holder
of Class A Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of
Common Stock and the
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amount, if any, of other property which at the time would be received upon the
conversion of Class A Preferred.
(i) Notices.
(A) In the event that the Company shall propose at any time:
(1) to declare any dividend or distribution upon its
Common Stock;
(2) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of
stock of any class or series or other rights; or
(3) to effect any transaction of the type described
in Section 7(e) hereof involving a change in the Common Stock;
then, in connection with each such event, the Company shall send to
the holders of the Class A Preferred:
(i) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend
or distribution (and specifying the date on which the holders
of Common Stock shall be entitled thereto) or for determining
rights to vote in respect of the matters referred to in (1)
and (2) above; and
(ii) in the case of the matters referred to
in (3) above, at least 20 days' prior written notice of the
date when the same shall take place (and specifying the time
on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
(B) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall send to
the holders of the Class A Preferred at least 20 days' prior written
notice.
(C) The Company shall send written notice immediately upon
any public announcement with respect to an open market repurchase
program, any self tender offer for shares of Common Stock and any
other repurchase other than a repurchase of stock of an employee or
consultant pursuant to any benefit plan or agreement.
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8. Redemption.
(a) Redemption. The Class A Preferred shall not be subject to
redemption prior to the last day of the month in which the fifth anniversary of
the date of issuance occurs. On or after such date, the Company may, at its
option, redeem all or from time to time any part of the shares of Class A
Preferred, out of funds legally available therefor, upon giving the Redemption
Notice as set forth in Section 8(b) hereof. The redemption payment for each
share of Class A Preferred shall be an amount (the "Redemption Payment") in
cash equal to the sum of (i) the amount of all accrued and unpaid dividends
(whether or not declared) thereon to and including the date fixed for
redemption plus (ii) $1000. In the event of a redemption of only a part of the
then outstanding Class A Preferred, the Company shall effect such redemption
ratably according to the number of shares held by each holder of Class A
Preferred.
(b) Mechanics of Redemption.
(i) At least 30 days, but no more than 60 days, prior to the date
fixed for any redemption pursuant to Section 8(a) (the "Redemption Date"), the
Company shall send a written notice (the "Redemption Notice") to the holders of
shares to be redeemed on such date (the "Redemption Shares") stating: (A) the
total number of shares being redeemed; (B) the number of Redemption Shares held
by such holder; (C) the Redemption Date and the Redemption Payment; (D) the
date on which such holder's conversion rights as to such shares shall
terminate; and (E) the manner in which and the place at which such holder is to
surrender to the Company the certificate or certificates representing the
Redemption Shares.
(ii) Upon the surrender to the Company, in the manner and at the
place designated, of a certificate or certificates representing Redemption
Shares, the Redemption Payment for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof. All such surrendered certificates shall be cancelled. Upon
redemption of only a portion of the shares of Class A Preferred represented by
a certificate surrendered for redemption, the Company shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered,
at the expense of the Company (except for expenses relating to the issuance of
such shares to a person other than the record holder of the Redemption Shares),
a new certificate representing the unredeemed shares of Class A Preferred
represented by the certificate so surrendered.
(iii) On or prior to the Redemption Date, the Company shall have the
option to deposit the aggregate of all Redemption Payments for all Redemption
Shares (other than Redemption Shares surrendered for conversion prior to such
date) in a bank or trust company (designated in the notice of such redemption)
doing business in the State of Ohio or the City of New York, having aggregate
capital and surplus in excess of $500,000,000, as a trust fund for the benefit
of the respective holders of Redemption
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Shares, with irrevocable instructions and authority to the bank or trust
company to pay the appropriate Redemption Payment to the holders of Redemption
Shares upon receipt of notification from the Company that such holder has
surrendered the certificate representing such shares to the Company. Such
instructions shall also provide that any such moneys remaining unclaimed at the
expiration of one year following the Redemption Date shall thereafter be
returned to the Company upon its request as expressed in a resolution of its
Board of Directors. The holder of any Redemption Shares in respect of which
such deposit has been returned to the Company pursuant to the preceding sentence
shall have a claim as an unsecured creditor against the Company for the
Redemption Payment in respect thereof, without interest.
(iv) Provided that the Company has given the Redemption Notice
described in Section 8(b)(i) and has on or prior to the Redemption Date either
paid or made available (as described in Section 8(b)(iii)) Redemption Payments
to the holders of Redemption Shares, all Redemption Shares shall be deemed to
have been redeemed as of the close of business of the Company on the applicable
Redemption Date. Thereafter, the holder of such shares shall no longer be
treated for any purposes as the record holder of such shares of Class A
Preferred, regardless of whether the certificates representing such shares are
surrendered to the Company or its transfer agent, excepting only the right of
the holder to receive the appropriate Redemption Payment, without interest,
upon such surrender. Such shares so redeemed shall not be transferred on the
books of the Company or be deemed to be outstanding for any purpose whatsoever.
(v) The Company shall not be obligated to pay the Redemption Payment
to any holder of Redemption Shares unless the certificates evidencing such
shares are either delivered to the Company or its transfer agent, or the holder
notifies the Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection with such
certificates.
(c) Limitation on Redemption. The Company shall not be obligated to
redeem any shares of Class A Preferred which have previously been converted
into Common Stock. The Company shall not be obligated to redeem shares
pursuant to this Section 8 if such redemption would violate any provisions of
applicable law. If, after giving the Redemption Notice, the Company is unable,
pursuant to applicable law, to redeem some or all unconverted Redemption Shares
on any particular Redemption Date, the Company shall promptly notify the
holders thereof of the facts that prevent the Company from so redeeming such
shares. Thereafter, the Company shall redeem such unredeemed Redemption Shares
at such time as it is lawfully able to do so.
9. Status of Converted Shares. If shares of Class A Preferred are
converted pursuant to Section 7 hereof or redeemed pursuant to Section 8
hereof, the shares so converted or redeemed shall resume the status of
authorized but unissued shares of Preferred Stock of the Company unless
otherwise prohibited by applicable law.
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10. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or when sent by telegram or telecopier (with
receipt confirmed), provided a copy is also sent by express (overnight, if
possible) courier, addressed (i) in the case of a holder of Class A Preferred,
to such holder's address of record, and (ii) in the case of the Company, to the
Company's principal executive offices to the attention of the Company's
secretary.
11. Amendments and Waivers. Any right, preference, privilege or
power of, or restriction provided for the benefit of, the Class A Preferred set
forth herein may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the affirmative vote
or written consent of the holders of not less than a majority of the shares of
Class A Preferred then outstanding, and any amendment or waiver so effected
shall be binding upon the Company and all holders of Class A Preferred.
12. Additional Definitions. As used herein the term "Trading Day"
means each Monday, Tuesday, Wednesday, Thursday and Friday which is a day on
which the New York Stock Exchange, Inc. is open for trading.
As used herein, the term "Market Price" of a share of Common Stock or
of any other security of the Company on any date shall mean: (i) the last
reported sales price of the Common Stock or such other security on the
principal national securities exchange on which such Common Stock or other
security is listed or admitted to trading or, if no such reported sale takes
place on such date, the average of the closing bid and asked prices thereon, as
reported in The Wall Street Journal, or (ii) if such Common Stock or other
security shall not be listed or admitted to trading on a national securities
exchange, the last reported sales price on the NASDAQ National Market or, if no
such reported sales takes place on any such date, the average of the closing
bid and asked prices thereon, as reported in The Wall Street Journal, or (iii)
if such Common Stock or other security shall not be quoted on such National
Market nor listed or admitted to trading on a national securities exchange,
then the average of the closing bid and asked prices, as reported by The Wall
Street Journal for the over-the-counter market, or (iv) if there is no public
market for such Common Stock or other security, the fair market value of a
share of such Common Stock or a unit of such other security as determined in
good faith by the Board of Directors of the Company.
The term "Average Market Price" shall mean the average of the Market
Prices for the 30 consecutive trading days immediately preceding the date in
question.
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ANNEX B
SERIES A WARRANT TO PURCHASE COMMON SHARES
OF
THE SCOTTS COMPANY
THIS WARRANT WAS ISSUED PURSUANT TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 26, 1995 (THE "MERGER AGREEMENT"), AMONG STERN'S
MIRACLE-GRO PRODUCTS, INC., STERN'S NURSERIES, INC., MIRACLE-GRO LAWN PRODUCTS
INC., MIRACLE-GRO PRODUCTS LIMITED, THE SHAREHOLDERS LISTED THEREIN, THE SCOTTS
COMPANY AND ZYX CORPORATION. NO TRANSFER MAY OCCUR EXCEPT IN CONFORMITY WITH
THE TERMS OF THE MERGER AGREEMENT.
No. WA-1 Warrant to Purchase ______
Common Shares, without par value
(subject to adjustment)
Void after [September 30], 2003
For value received, THE SCOTTS COMPANY, an Ohio corporation (the
"Company"), hereby certifies that ___________, or registered assigns (the
"Holder"), is entitled, subject to the terms set forth below and to the Merger
Agreement, to purchase from the Company, ______ Common Shares, without par
value, of the Company ("Common Stock"), as constituted on [March 31], 1995 (the
"Warrant Issue Date"), upon surrender hereof at the principal office of the
Company referred to below, with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States as hereinafter provided at the per share price of $21 (the "Exercise
Price"). The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as provided below. The term "Warrant" as used
herein shall include this Warrant and any warrants delivered in substitution or
exchange therefor as provided herein. This Warrant is registered and its
transfer may be registered upon the books maintained for that purpose by the
Company by delivery of this Warrant duly endorsed.
Terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Merger Agreement.
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1. Term of Warrant. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part, during
the term commencing on [March 31], 1995 and ending at 5:00 p.m., Eastern time,
on the date eight years and six months after the Warrant Issue Date, and shall
be void thereafter.
2. Exercise of Warrant.
2.1 Method. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, at any time, or from
time to time, during the term hereof as described in Section 1 above and
subject to Section 2.5, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed by the Holder at the
principal executive office of the Company at 14111 Scottslawn Road, Marysville,
Ohio 43041 (or such other office or agency of the Company as it may designate
by notice in writing to the Holder), upon payment in cash or by wire transfer
to a bank account designated by the Company or by a certified or cashier's
check of the aggregate Exercise Price of the shares to be purchased; provided,
however, that, in lieu of cash, such Holder may pay such Exercise Price by
exchanging shares of Common Stock having an aggregate Market Price equal to the
aggregate Exercise Price or by reducing the number of shares of Common Stock
such Holder would otherwise be entitled to upon such exercise by a number of
shares of Common Stock having an aggregate Market Price equal to the aggregate
Exercise Price.
2.2 Effect. This Warrant shall be deemed to have been
exercised at the time of its surrender for exercise together with full payment
as provided above, and the person entitled to receive the shares of Common
Stock issuable upon such exercise shall be treated for all purposes as the
holder of record of such shares at and after such time. As promptly as
practicable on or after such date the Company at its expense shall issue to the
person entitled to receive the same a certificate for the number of shares of
Common Stock issuable upon such exercise. If this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant
exercisable for the number of shares for which this Warrant may then be
exercised.
2.3 Holder Not a Shareholder. The Holder shall neither
be entitled to vote nor receive dividends nor be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose until the Warrant has been exercised for
shares of Common Stock as provided in this Section 2.
2.4 No Fractional Shares or Scrip. No fractional shares
or scrip representing fractional shares of Common Stock shall be issued upon
the exercise of this Warrant. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.
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2.5 Exercise for Cash in Certain Circumstances.
Notwithstanding the foregoing, (a) until the fifth anniversary of the Warrant
Issue Date, in the event, and to the extent that, the exercise of this Warrant
would cause the Total Voting Power of the Shareholders to exceed the Standstill
Percentage, this Warrant shall not be exercisable for shares of Common Stock
but rather shall be exercisable solely for the difference at the time of
exercise between the Market Price and the Exercise Price at such time and (b)
thereafter, in the event, and to the extent that, the exercise of this Warrant
would cause the Total Voting Power of the Shareholders to exceed 49%, this
Warrant shall not be exercisable for shares of Common Stock but rather shall be
exercisable solely for the difference at the time of exercise between the
Market Price and the Exercise Price at such time.
3. Registered Warrants.
3.1 Series. This Warrant is one of a series of Warrants,
designated as Series A, which are identical except as to the number of shares
of Common Stock purchasable and as to any restriction on the transfer thereof
in order to comply with the Securities Act of 1933 (the "Act") and the
regulations of the Securities and Exchange Commission promulgated thereunder or
state securities or blue sky laws. Such Warrants are referred to herein
collectively as the "Warrants."
3.2 Record Ownership. The Company shall maintain a
register of the Holders of the Warrants (the "Register") showing their names
and addresses and the serial numbers and number of Common Shares purchasable,
issued to or transferred of record by them from time to time. The Register may
be maintained in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Warrant in the Register as the
sole owner of this Warrant. The Holder of this Warrant is the person
exclusively entitled to receive notifications with respect to this Warrant,
exercise it to purchase shares of Common Stock and otherwise exercise all of
the rights and powers as the absolute owner hereof.
3.3 Registration of Transfer. To the extent permitted
under the Merger Agreement, transfers of this Warrant may be registered on the
Register. Transfers shall be registered when this Warrant is presented to the
Company duly endorsed with a request to register the transfer hereof in
accordance with the terms of the Merger Agreement. When this Warrant is
presented for transfer and duly transferred hereunder, it shall be cancelled
and a new Warrant showing the name of the transferee as the Holder thereof
shall be issued in lieu hereof. No transfer of this Warrant may take place
except in accordance with the terms of the Merger Agreement.
3.4 Worn and Lost Warrants. If this Warrant becomes
worn, defaced or mutilated but is still substantially intact and recognizable,
the Company or its agent may issue a new Warrant in lieu hereof upon its
surrender. If this Warrant is lost, destroyed or wrongfully taken, the Company
shall issue a new Warrant in place of the original Warrant if the Holder so
requests by written notice to the Company and the Holder has delivered to
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182
the Company an indemnity agreement reasonably satisfactory to the Company with
an affidavit of the Holder that this Warrant has been lost, destroyed or
wrongfully taken.
3.5 Restrictions on Transfer. (a) This Warrant and the
Common Stock issuable upon the exercise hereof have been registered under the
Act on Form S-4, and therefore this Warrant and the Common Stock issuable upon
the exercise of this Warrant may not be offered for sale, sold or otherwise
transferred unless such offer, sale or other transfer complies with Rule 145
under the Act and is otherwise registered under the appropriate state
securities or Blue Sky laws or such transfer is exempt from such registration.
(b) No transfer of this Warrant or the Common Stock issuable
upon the exercise hereof may be made except in accordance with the terms of the
Merger Agreement.
3.6 Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Register,
issuing Common Stock or other securities then issuable upon the exercise of
this Warrant, exchanging or transferring this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or transfer,
as the case may be, shall be made at the office of such agent.
4. Reservation of Stock. The Company covenants that, during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock or Common Stock held in Treasury a sufficient number
of shares to provide for the issuance of Common Stock upon the exercise of
this Warrant. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, all as
set forth herein, will be duly authorized, validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the exercise of this Warrant.
5. Effects of Certain Events.
5.1 Common Stock Dividends, Subdivisions or Combinations.
In case the Company shall (A) pay or make a dividend or other distribution to
all holders of its Common Stock in shares of its Common Stock, (B) subdivide,
split or reclassify the outstanding shares of its Common Stock into a larger
number of shares or (C) combine or reclassify the outstanding shares of its
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall thereafter be entitled to receive upon the exercise of this Warrant,
subject to Section 2.5, the number of shares of Common Stock which such Holder
would have owned and been entitled to receive had such Warrant been exercised
immediately prior to the happening of any of the events described above or, in
the case of a stock dividend or other distribution, prior to the
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183
record date for determination of shareholders entitled thereto. An adjustment
made pursuant to this Section 5.1 shall become effective immediately after such
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, split, combination or
reclassification.
5.2 Distributions of Assets or Securities Other Than
Common Stock. In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any of its capital stock (other
than Common Stock), rights or warrants to purchase any of its securities (other
than those referred to in Section 5.3 below), cash (other than any regular
quarterly or semi-annual dividend which the Board of Directors of the Company
determines), other assets or evidences of its indebtedness, then in each such
case the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the date of such dividend or distribution by a
fraction, of which the numerator shall be the Average Market Price per share of
Common Stock at the record date for determining shareholders entitled to such
dividend or distribution less the fair market value (as determined in good
faith by the Board of Directors) of the portion of the securities, cash, assets
or evidences of indebtedness so distributed applicable to one share of Common
Stock, and of which the denominator shall be such Average Market Price per
share. An adjustment made pursuant to this Section 5.2 shall become effective
immediately after such record date.
5.3 Below Market Distributions or Issuances. In case the
Company shall issue Common Stock (or rights, warrants or other securities
convertible into or exchangeable or exercisable for shares of Common Stock) to
all holders of Common Stock at a price per share (or having an effective
exercise, exchange or conversion price per share) less than the Average Market
Price per share of Common Stock at the record date for the determination of
shareholders entitled to receive such Common Stock (or rights, warrants or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the date of
issuance of such Common Stock (or rights, warrants or other securities) by a
fraction, the numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of such issuance (without giving effect
to any such issuance) and (B) the number of shares which the aggregate
consideration receivable by the Company for the total number of shares of
Common Stock so issued (or into or for which such rights, warrants or other
securities are convertible, exchangeable or exercisable) would purchase at such
Average Market Price, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding on the date of such issuance
(without giving effect to any such issuance) and (B) the number of additional
shares of Common Stock so issued (or into or for which such rights, warrants or
other securities are convertible, exchangeable or exercisable). An adjustment
made pursuant to this Section 5.3 shall become effective immediately after the
record date for determination of shareholders entitled to receive or purchase
such Common Stock (or rights, warrants or other securities convertible into or
exchangeable or exercisable for shares of Common Stock). For purposes of this
Section 5.3, the issuance of any options, rights or warrants or any shares of
Common Stock (whether treasury shares or newly issued shares) pursuant to
B-5
184
any employee (including consultants and directors) benefit or stock option or
purchase plan or program of the Company shall not be deemed to constitute an
issuance of Common Stock or options, rights or warrants to which this Section
5.3 applies. Notwithstanding anything herein to the contrary, no further
adjustment to the Exercise Price shall be made (i) upon the issuance or sale of
Common Stock upon the exercise of any rights or warrants or (ii) upon the
issuance or sale of Common Stock upon conversion or exchange of any convertible
securities, if any adjustment in the Exercise Price was made or required to be
made upon the issuance or sale of such rights, warrants or securities.
5.4 Repurchases. In case at any time or from time to
time the Company or any subsidiary thereof shall repurchase, by self tender
offer or otherwise, any shares of Common Stock of the Company at a weighted
average purchase price in excess of the Average Market Price on the business
day immediately prior to the earliest of the date of such repurchase, the
commencement of an offer to repurchase or the public announcement of either
(such date being referred to as the "Determination Date"), the Exercise Price
in effect as of such Determination Date shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which shall be (A) the product
of (x) the number of shares of Common Stock outstanding on such Determination
Date and (y) the Average Market Price of the Common Stock on such Determination
Date minus (B) the aggregate purchase price of such repurchase and the
denominator of which shall be the product of (x) the number of shares of Common
Stock outstanding on such Determination Date minus the number of shares of
Common Stock repurchased by the Company or any subsidiary thereof in such
repurchase and (y) the Average Market Price of the Common Stock on such
Determination Date. For purposes of this clause (iv), the repurchase or
repurchases by the Company or any subsidiary thereof within any 12 month period
of not more than 15% of the shares of Common Stock outstanding as of the first
date of such period, at a price not in excess of 120% of the Average Market
Price as of the Determination Date of any such repurchase, shall not be deemed
to constitute a repurchase to which this Section 5.4 applies. An adjustment
made pursuant to this Section 5.4 shall become effective immediately after the
effective date of such repurchase.
6. Certain Reorganizations. In the event of any change,
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company (other than any reclassification referred to in
Section 5.1), whether pursuant to a merger, consolidation, reorganization or
otherwise, or the sale or other disposition of all or substantially all of the
assets and properties of the Company, this Warrant shall, after such merger,
consolidation, reorganization or other transaction, sale or other disposition,
be exercisable for the kind and number of shares of stock or other securities
or property, of the Company or otherwise, to which the Holder would have been
entitled if immediately prior to such event such Holder had exercised this
Warrant for Common Stock at the Exercise Price in effect as of the consummation
of such event. The provisions of this Section 6 shall similarly apply to
successive changes, reclassifications, conversions, exchange or cancellations.
B-6
185
7. No Impairment. Except as permitted by the Merger Agreement,
the Company will not, by amendment of its Restated Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder hereof against impairment.
8. Calculation of Adjustments. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this Section 8 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Warrant shall be made by the Company and shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
Anything in this Warrant to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
required by this Warrant, as it in its sole discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter made by the
Company to its shareholders shall not be taxable.
9. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Warrant, the
Company at its expense shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and furnish to the Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the Holder of this Warrant,
furnish or cause to be furnished to such Holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Exercise Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the exercise
of this Warrant; provided, however, that the Company shall not be required to
calculate the effect of Section 2.5 upon such exercise.
10. Notices.
10.1 Dilutive Events. In the event that the Company shall
propose at any time:
(1) to declare any dividend or distribution upon its Common
Stock;
(2) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights; or
B-7
186
(3) to effect any transaction of the type described in Section
6 hereof involving a change in the Common Stock;
then, in connection with each such event, the Company shall send to the Holders
of this Warrant:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend or distribution (and specifying
the date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (1) and (2)
above; and
(B) in the case of the matters referred to in (3) above, at
least 20 days' prior written notice of the date when the same shall take place
(and specifying the time on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property deliverable
upon the occurrence of such event).
10.2 Dissolution; Liquidation. In the event of any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall send to the Holder of this Warrant at least 20 days' prior
written notice.
10.3 Repurchase Programs. The Company shall send written
notice immediately upon any public announcement with respect to an open market
repurchase program, any self tender offer for shares of Common Stock and any
other repurchase other than a repurchase of stock of an employee or consultant
pursuant to any benefit plan or agreement.
11. Amendments. This Warrant may not be amended without the prior
written consent of the Holder.
12. Additional Definition. As used herein, the term "Average
Market Price" shall mean the average of the Market Prices for the 30
consecutive trading immediately preceding the date in question.
13. Notices. Any notice, certificate or other communication which
is required or convenient under the terms of this Warrant shall be duly given
if it is in writing and delivered in person or mailed by first class mail,
postage prepaid, and directed to the Holder of the Warrant at its address as it
appears on the Register or if to the Company to its principal executive
offices. The time when such notice is sent shall be the time of the giving of
the notice.
14. Time. Where this Warrant provides for a payment or
performance on a Saturday or Sunday or a public holiday in the State of Ohio,
such payment or performance may be made on the next succeeding business day,
without liability of the Company for interest on any such payment.
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15. Rules of Construction. In this Warrant, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates, words of the neuter
gender may refer to any gender. The numbers and titles of sections contained
in this Warrant are inserted for convenience of reference only, and they
neither form a part of this Warrant nor are they to be used in the construction
or interpretation hereof.
16. Governing Law. This Warrant shall be construed in accordance
with and governed by the law of the State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereto duly authorized.
THE SCOTTS COMPANY
By:
--------------------------------
Name:
Title:
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188
Assignment of Warrant
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
of this Warrant.
- ------------------------------------------
(portion of Warrant)
Date: Sign:
-------------------------- ------------------------------------
(Signature must conform in all respects to
name of Holder shown on face of Warrant)
Signature Guaranteed:
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189
Notice of Exercise
[To be completed and signed only upon exercise of Warrant]
The undersigned, the Holder of this Warrant, hereby irrevocably elects
to exercise the right to purchase Common Stock, without par value, of The
Scotts Company as follows:
---------------------------------------------------
(whole number of Warrants exercised)
Dollars ($ )
---------------------------------------------------
(number of Warrants exercised times Exercise Price)
Shares ( )
---------------------------------------------------
Dollars ($ )
---------------------------------------------------
(number of shares and Market Price of Common
Stock in cashless exercise)
[Signature must be ---------------------------------------------------
guaranteed if name of (name of holder of shares if different than Holder
holder of shares differs of Warrant)
from registered Holder
of Warrant]
---------------------------------------------------
(address of holder of shares if different than
address of Holder of Warrant)
---------------------------------------------------
(Social Security or EIN of holder of shares if
different than Holder of Warrant)
Date: Sign:
---------------- ---------------------------------------------------
(Signature must conform in all respects to name of
Holder shown on face of this Warrant)
Signature Guaranteed:
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190
RECEIPT FOR WARRANTS
Each of the undersigned individuals hereby acknowledges receipt from
The Scotts Company (the "Company") on this [31]st day of [March], 1995, of a
separate warrant for the purchase of that number of common shares of the
Company indicated opposite the signature of each undersigned individual,
respectively, subject to the terms and conditions contained in the warrant.
SIGNATURE NUMBER OF SHARES
- --------- ----------------
- ------------------------------
Horace Hagedorn
- ------------------------------
James Hagedorn
- ------------------------------
Katherine Hagedorn Littlefield
- ------------------------------
Paul Hagedorn
- ------------------------------
Robert Hagedorn
- ------------------------------
Susan Hagedorn
- ------------------------------
John Kenlon
B-12
191
ANNEX C
SERIES B WARRANT TO PURCHASE COMMON SHARES
OF
THE SCOTTS COMPANY
THIS WARRANT WAS ISSUED PURSUANT TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 26, 1995 (THE "MERGER AGREEMENT"), AMONG STERN'S
MIRACLE-GRO PRODUCTS, INC., STERN'S NURSERIES, INC., MIRACLE-GRO LAWN PRODUCTS
INC., MIRACLE-GRO PRODUCTS LIMITED, THE SHAREHOLDERS LISTED THEREIN, THE SCOTTS
COMPANY AND ZYX CORPORATION. NO TRANSFER MAY OCCUR EXCEPT IN CONFORMITY WITH
THE TERMS OF THE MERGER AGREEMENT.
No. WB-1 Warrant to Purchase __________
Common Shares, without par value
(subject to adjustment)
Void after [September 30], 2003
For value received, THE SCOTTS COMPANY, an Ohio corporation (the
"Company"), hereby certifies that ___________, or registered assigns (the
"Holder"), is entitled, subject to the terms set forth below and to the Merger
Agreement, to purchase from the Company, ______ Common Shares, without par
value, of the Company ("Common Stock"), as constituted on [March 31], 1995 (the
"Warrant Issue Date"), upon surrender hereof at the principal office of the
Company referred to below, with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States as hereinafter provided at the per share price of $25 (the "Exercise
Price"). The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as provided below. The term "Warrant" as used
herein shall include this Warrant and any warrants delivered in substitution or
exchange therefor as provided herein. This Warrant is registered and its
transfer may be registered upon the books maintained for that purpose by the
Company by delivery of this Warrant duly endorsed.
Terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Merger Agreement.
1. Term of Warrant. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part, during
the term commencing on [March
C-1
192
31], 1995 and ending at 5:00 p.m., Eastern time, on the date eight years and
six months after the Warrant Issue Date, and shall be void thereafter.
2. Exercise of Warrant.
2.1 Method. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, at any time, or from
time to time, during the term hereof as described in Section 1 above and
subject to Section 2.5, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed by the Holder at the
principal executive office of the Company at 14111 Scottslawn Road, Marysville,
Ohio 43041 (or such other office or agency of the Company as it may designate
by notice in writing to the Holder), upon payment in cash or by wire transfer
to a bank account designated by the Company or by a certified or cashier's
check of the aggregate Exercise Price of the shares to be purchased; provided,
however, that, in lieu of cash, such Holder may pay such Exercise Price by
exchanging shares of Common Stock having an aggregate Market Price equal to the
aggregate Exercise Price or by reducing the number of shares of Common Stock
such Holder would otherwise be entitled to upon such exercise by a number of
shares of Common Stock having an aggregate Market Price equal to the aggregate
Exercise Price.
2.2 Effect. This Warrant shall be deemed to have been
exercised at the time of its surrender for exercise together with full payment
as provided above, and the person entitled to receive the shares of Common
Stock issuable upon such exercise shall be treated for all purposes as the
holder of record of such shares at and after such time. As promptly as
practicable on or after such date the Company at its expense shall issue to the
person entitled to receive the same a certificate for the number of shares of
Common Stock issuable upon such exercise. If this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant
exercisable for the number of shares for which this Warrant may then be
exercised.
2.3 Holder Not a Shareholder. The Holder shall neither
be entitled to vote nor receive dividends nor be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose until the Warrant has been exercised for
shares of Common Stock as provided in this Section 2.
2.4 No Fractional Shares or Scrip. No fractional shares
or scrip representing fractional shares of Common Stock shall be issued upon
the exercise of this Warrant. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.
2.5 Exercise for Cash in Certain Circumstances.
Notwithstanding the foregoing, (a) until the fifth anniversary of the Warrant
Issue Date, in the event, and to the
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193
extent that, the exercise of this Warrant would cause the Total Voting Power of
the Shareholders to exceed the Standstill Percentage, this Warrant shall not be
exercisable for shares of Common Stock but rather shall be exercisable solely
for the difference at the time of exercise between the Market Price and the
Exercise Price at such time and (b) thereafter, in the event, and to the extent
that, the exercise of this Warrant would cause the Total Voting Power of the
Shareholders to exceed 49%, this Warrant shall not be exercisable for shares of
Common Stock but rather shall be exercisable solely for the difference at the
time of exercise between the Market Price and the Exercise Price at such time.
3. Registered Warrants.
3.1 Series. This Warrant is one of a series of Warrants,
designated as Series B, which are identical except as to the number of shares
of Common Stock purchasable and as to any restriction on the transfer thereof
in order to comply with the Securities Act of 1933 (the "Act") and the
regulations of the Securities and Exchange Commission promulgated thereunder or
state securities or blue sky laws. Such Warrants are referred to herein
collectively as the "Warrants."
3.2 Record Ownership. The Company shall maintain a
register of the Holders of the Warrants (the "Register") showing their names
and addresses and the serial numbers and number of Common Shares purchasable,
issued to or transferred of record by them from time to time. The Register may
be maintained in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Warrant in the Register as the
sole owner of this Warrant. The Holder of this Warrant is the person
exclusively entitled to receive notifications with respect to this Warrant,
exercise it to purchase shares of Common Stock and otherwise exercise all of
the rights and powers as the absolute owner hereof.
3.3 Registration of Transfer. To the extent permitted
under the Merger Agreement, transfers of this Warrant may be registered on the
Register. Transfers shall be registered when this Warrant is presented to the
Company duly endorsed with a request to register the transfer hereof in
accordance with the terms of the Merger Agreement. When this Warrant is
presented for transfer and duly transferred hereunder, it shall be cancelled
and a new Warrant showing the name of the transferee as the Holder thereof
shall be issued in lieu hereof. No transfer of this Warrant may take place
except in accordance with the terms of the Merger Agreement.
3.4 Worn and Lost Warrants. If this Warrant becomes
worn, defaced or mutilated but is still substantially intact and recognizable,
the Company or its agent may issue a new Warrant in lieu hereof upon its
surrender. If this Warrant is lost, destroyed or wrongfully taken, the Company
shall issue a new Warrant in place of the original Warrant if the Holder so
requests by written notice to the Company and the Holder has delivered to
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the Company an indemnity agreement reasonably satisfactory to the Company with
an affidavit of the Holder that this Warrant has been lost, destroyed or
wrongfully taken.
3.5 Restrictions on Transfer. (a) This Warrant and the
Common Stock issuable upon the exercise hereof have been registered under the
Act on Form S-4, and therefore this Warrant and the Common Stock issuable upon
the exercise of this Warrant may not be offered for sale, sold or otherwise
transferred unless such offer, sale or other transfer complies with Rule 145
under the Act and is otherwise registered under the appropriate state
securities or Blue Sky laws or such transfer is exempt from such registration.
(b) No transfer of this Warrant or the Common Stock issuable
upon the exercise hereof may be made except in accordance with the terms of the
Merger Agreement.
3.6 Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Register,
issuing Common Stock or other securities then issuable upon the exercise of
this Warrant, exchanging or transferring this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or transfer,
as the case may be, shall be made at the office of such agent.
4. Reservation of Stock. The Company covenants that, during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock or Common Stock held in Treasury a sufficient number
of shares to provide for the issuance of Common Stock upon the exercise of
this Warrant. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, all as
set forth herein, will be duly authorized, validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the exercise of this Warrant.
5. Effects of Certain Events.
5.1 Common Stock Dividends, Subdivisions or Combinations.
In case the Company shall (A) pay or make a dividend or other distribution to
all holders of its Common Stock in shares of its Common Stock, (B) subdivide,
split or reclassify the outstanding shares of its Common Stock into a larger
number of shares or (C) combine or reclassify the outstanding shares of its
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall thereafter be entitled to receive upon the exercise of this Warrant,
subject to Section 2.5, the number of shares of Common Stock which such Holder
would have owned and been entitled to receive had such Warrant been exercised
immediately prior to the happening of any of the
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events described above or, in the case of a stock dividend or other
distribution, prior to the record date for determination of shareholders
entitled thereto. An adjustment made pursuant to this Section 5.1 shall become
effective immediately after such record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, split, combination or reclassification.
5.2 Distributions of Assets or Securities Other Than Common Stock.
In case the Company shall, by dividend or otherwise, distribute to all holders
of its Common Stock shares of any of its capital stock (other than Common
Stock), rights or warrants to purchase any of its securities (other than those
referred to in Section 5.3 below), cash (other than any regular quarterly or
semi-annual dividend which the Board of Directors of the Company determines),
other assets or evidences of its indebtedness, then in each such case the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the date of such dividend or distribution by a fraction, of
which the numerator shall be the Average Market Price per share of Common Stock
at the record date for determining shareholders entitled to such dividend or
distribution less the fair market value (as determined in good faith by the
Board of Directors) of the portion of the securities, cash, assets or evidences
of indebtedness so distributed applicable to one share of Common Stock, and of
which the denominator shall be such Average Market Price per share. An
adjustment made pursuant to this Section 5.2 shall become effective immediately
after such record date.
5.3 Below Market Distributions or Issuances. In case the Company
shall issue Common Stock (or rights, warrants or other securities convertible
into or exchangeable or exercisable for shares of Common Stock) to all holders
of Common Stock at a price per share (or having an effective exercise, exchange
or conversion price per share) less than the Average Market Price per share of
Common Stock at the record date for the determination of shareholders entitled
to receive such Common Stock (or rights, warrants or other securities
convertible into or exchangeable or exercisable for shares of Common Stock),
then in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the date of issuance of such
Common Stock (or rights, warrants or other securities) by a fraction, the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding on the date of such issuance (without giving effect to any such
issuance) and (B) the number of shares which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so
issued (or into or for which such rights, warrants or other securities are
convertible, exchangeable or exercisable) would purchase at such Average Market
Price, and the denominator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of such issuance (without giving effect
to any such issuance) and (B) the number of additional shares of Common Stock so
issued (or into or for which such rights, warrants or other securities are
convertible, exchangeable or exercisable). An adjustment made pursuant to this
Section 5.3 shall become effective immediately after the record date for
determination of shareholders entitled to receive or purchase such Common Stock
(or rights, warrants or other securities convertible into or exchangeable or
exercisable for shares of Common
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Stock). For purposes of this Section 5.3, the issuance of any options, rights
or warrants or any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to any employee (including consultants and directors)
benefit or stock option or purchase plan or program of the Company shall not be
deemed to constitute an issuance of Common Stock or options, rights or warrants
to which this Section 5.3 applies. Notwithstanding anything herein to the
contrary, no further adjustment to the Exercise Price shall be made (i) upon
the issuance or sale of Common Stock upon the exercise of any rights or
warrants or (ii) upon the issuance or sale of Common Stock upon conversion or
exchange of any convertible securities, if any adjustment in the Exercise Price
was made or required to be made upon the issuance or sale of such rights,
warrants or securities.
5.4 Repurchases. In case at any time or from time to
time the Company or any subsidiary thereof shall repurchase, by self tender
offer or otherwise, any shares of Common Stock of the Company at a weighted
average purchase price in excess of the Average Market Price on the business
day immediately prior to the earliest of the date of such repurchase, the
commencement of an offer to repurchase or the public announcement of either
(such date being referred to as the "Determination Date"), the Exercise Price
in effect as of such Determination Date shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which shall be (A) the product
of (x) the number of shares of Common Stock outstanding on such Determination
Date and (y) the Average Market Price of the Common Stock on such Determination
Date minus (B) the aggregate purchase price of such repurchase and the
denominator of which shall be the product of (x) the number of shares of Common
Stock outstanding on such Determination Date minus the number of shares of
Common Stock repurchased by the Company or any subsidiary thereof in such
repurchase and (y) the Average Market Price of the Common Stock on such
Determination Date. For purposes of this clause (iv), the repurchase or
repurchases by the Company or any subsidiary thereof within any 12 month period
of not more than 15% of the shares of Common Stock outstanding as of the first
date of such period, at a price not in excess of 120% of the Average Market
Price as of the Determination Date of any such repurchase, shall not be deemed
to constitute a repurchase to which this Section 5.4 applies. An adjustment
made pursuant to this Section 5.4 shall become effective immediately after the
effective date of such repurchase.
6. Certain Reorganizations. In the event of any change,
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company (other than any reclassification referred to in
Section 5.1), whether pursuant to a merger, consolidation, reorganization or
otherwise, or the sale or other disposition of all or substantially all of the
assets and properties of the Company, this Warrant shall, after such merger,
consolidation, reorganization or other transaction, sale or other disposition,
be exercisable for the kind and number of shares of stock or other securities
or property, of the Company or otherwise, to which the Holder would have been
entitled if immediately prior to such event such Holder had exercised this
Warrant for Common Stock at the Exercise Price in effect as of the consummation
of such event. The provisions of this Section 6 shall
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similarly apply to successive changes, reclassifications, conversions, exchange
or cancellations.
7. No Impairment. Except as permitted by the Merger Agreement,
the Company will not, by amendment of its Restated Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder hereof against impairment.
8. Calculation of Adjustments. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this Section 8 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Warrant shall be made by the Company and shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
Anything in this Warrant to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
required by this Warrant, as it in its sole discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter made by the
Company to its shareholders shall not be taxable.
9. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Warrant, the
Company at its expense shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and furnish to the Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the Holder of this Warrant,
furnish or cause to be furnished to such Holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Exercise Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the exercise
of this Warrant; provided, however, that the Company shall not be required to
calculate the effect of Section 2.5 upon such exercise.
10. Notices.
10.1 Dilutive Events. In the event that the Company shall
propose at any time:
(1) to declare any dividend or distribution upon its Common
Stock;
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(2) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights; or
(3) to effect any transaction of the type described in Section
6 hereof involving a change in the Common Stock;
then, in connection with each such event, the Company shall send to the Holders
of this Warrant:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend or distribution (and specifying
the date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (1) and (2)
above; and
(B) in the case of the matters referred to in (3) above, at
least 20 days' prior written notice of the date when the same shall take place
(and specifying the time on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property deliverable
upon the occurrence of such event).
10.2 Dissolution; Liquidation. In the event of any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall send to the Holder of this Warrant at least 20 days' prior
written notice.
10.3 Repurchase Programs. The Company shall send written
notice immediately upon any public announcement with respect to an open market
repurchase program, any self tender offer for shares of Common Stock and any
other repurchase other than a repurchase of stock of an employee or consultant
pursuant to any benefit plan or agreement.
11. Amendments. This Warrant may not be amended without the prior
written consent of the Holder.
12. Additional Definition. As used herein, the term "Average
Market Price" shall mean the average of the Market Prices for the 30
consecutive trading immediately preceding the date in question.
13. Notices. Any notice, certificate or other communication which
is required or convenient under the terms of this Warrant shall be duly given
if it is in writing and delivered in person or mailed by first class mail,
postage prepaid, and directed to the Holder of the Warrant at its address as it
appears on the Register or if to the Company to its principal executive
offices. The time when such notice is sent shall be the time of the giving of
the notice.
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14. Time. Where this Warrant provides for a payment or
performance on a Saturday or Sunday or a public holiday in the State of Ohio,
such payment or performance may be made on the next succeeding business day,
without liability of the Company for interest on any such payment.
15. Rules of Construction. In this Warrant, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates, words of the neuter
gender may refer to any gender. The numbers and titles of sections contained
in this Warrant are inserted for convenience of reference only, and they
neither form a part of this Warrant nor are they to be used in the construction
or interpretation hereof.
16. Governing Law. This Warrant shall be construed in accordance
with and governed by the law of the State of Ohio.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereto duly authorized.
THE SCOTTS COMPANY
By:
-------------------------
Name:
Title:
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Assignment of Warrant
The undersigned hereby sell(s) and assign(s) and transfer(s) unto______________
_______________________________________________________________________________
_______________________________________________________________________________
(name, address and SSN or EIN of assignee)
__________________________________ of this Warrant.
(portion of Warrant)
Date:_________________ Sign:
------------------------------------------------
(Signature must conform in all respects to
name of Holder shown on face of Warrant)
Signature Guaranteed:
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Notice of Exercise
[To be completed and signed only upon exercise of Warrant]
The undersigned, the Holder of this Warrant, hereby irrevocably elects
to exercise the right to purchase Common Stock, without par value, of The
Scotts Company as follows:
---------------------------------------------------
(whole number of Warrants exercised)
Dollars ($ )
---------------------------------------------------
(number of Warrants exercised times Exercise Price)
Shares ( )
---------------------------------------------------
Dollars ($ )
---------------------------------------------------
(number of shares and Market Price of Common Stock
in cashless exercise)
[Signature must be ---------------------------------------------------
guaranteed if name of (name of holder of shares if different than Holder
holder of shares differs of Warrant)
from registered Holder
of Warrant] --------------------------------------------------
(address of holder of shares if different than
address of Holder of Warrant)
--------------------------------------------------
(Social Security or EIN of holder of shares if
different than Holder of Warrant)
Date:______________ Sign:
------------------------------------------------
(Signature must conform in all respects to name
of Holder shown on face of this Warrant)
Signature Guaranteed:
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RECEIPT FOR WARRANTS
Each of the undersigned individuals hereby acknowledges receipt from
The Scotts Company (the "Company") on this [31]st day of [March], 1995, of a
separate warrant for the purchase of that number of common shares of the
Company indicated opposite the signature of each undersigned individual,
respectively, subject to the terms and conditions contained in the warrant.
SIGNATURE NUMBER OF SHARES
- --------- ----------------
- -------------------------------
Horace Hagedorn
- -------------------------------
James Hagedorn
- -------------------------------
Katherine Hagedorn Littlefield
- -------------------------------
Paul Hagedorn
- -------------------------------
Robert Hagedorn
- -------------------------------
Susan Hagedorn
- -------------------------------
John Kenlon
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ANNEX D
SERIES C WARRANT TO PURCHASE COMMON SHARES
OF
THE SCOTTS COMPANY
THIS WARRANT WAS ISSUED PURSUANT TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 26, 1995 (THE "MERGER AGREEMENT"), AMONG STERN'S
MIRACLE-GRO PRODUCTS, INC., STERN'S NURSERIES, INC., MIRACLE-GRO LAWN PRODUCTS
INC., MIRACLE-GRO PRODUCTS LIMITED, THE SHAREHOLDERS LISTED THEREIN, THE SCOTTS
COMPANY AND ZYX CORPORATION. NO TRANSFER MAY OCCUR EXCEPT IN CONFORMITY WITH
THE TERMS OF THE MERGER AGREEMENT.
No. WC-1 Warrant to Purchase ______
Common Shares, without par
value (subject to
adjustment)
Void after [September 30], 2003
For value received, THE SCOTTS COMPANY, an Ohio corporation (the
"Company"), hereby certifies that ___________, or registered assigns (the
"Holder"), is entitled, subject to the terms set forth below and to the Merger
Agreement, to purchase from the Company, ______ Common Shares, without par
value, of the Company ("Common Stock"), as constituted on [March 31], 1995 (the
"Warrant Issue Date"), upon surrender hereof at the principal office of the
Company referred to below, with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States as hereinafter provided at the per share price of $29 (the "Exercise
Price"). The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as provided below. The term "Warrant" as used
herein shall include this Warrant and any warrants delivered in substitution or
exchange therefor as provided herein. This Warrant is registered and its
transfer may be registered upon the books maintained for that purpose by the
Company by delivery of this Warrant duly endorsed.
Terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Merger Agreement.
1. Term of Warrant. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part, during
the term commencing on [March
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31], 1995 and ending at 5:00 p.m., Eastern time, on the date eight years and
six months after the Warrant Issue Date, and shall be void thereafter.
2. Exercise of Warrant.
2.1 Method. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, at any time, or from
time to time, during the term hereof as described in Section 1 above and
subject to Section 2.5, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed by the Holder at the
principal executive office of the Company at 14111 Scottslawn Road, Marysville,
Ohio 43041 (or such other office or agency of the Company as it may designate
by notice in writing to the Holder), upon payment in cash or by wire transfer
to a bank account designated by the Company or by a certified or cashier's
check of the aggregate Exercise Price of the shares to be purchased; provided,
however, that, in lieu of cash, such Holder may pay such Exercise Price by
exchanging shares of Common Stock having an aggregate Market Price equal to the
aggregate Exercise Price or by reducing the number of shares of Common Stock
such Holder would otherwise be entitled to upon such exercise by a number of
shares of Common Stock having an aggregate Market Price equal to the aggregate
Exercise Price.
2.2 Effect. This Warrant shall be deemed to have been
exercised at the time of its surrender for exercise together with full payment
as provided above, and the person entitled to receive the shares of Common
Stock issuable upon such exercise shall be treated for all purposes as the
holder of record of such shares at and after such time. As promptly as
practicable on or after such date the Company at its expense shall issue to the
person entitled to receive the same a certificate for the number of shares of
Common Stock issuable upon such exercise. If this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant
exercisable for the number of shares for which this Warrant may then be
exercised.
2.3 Holder Not a Shareholder. The Holder shall neither
be entitled to vote nor receive dividends nor be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose until the Warrant has been exercised for
shares of Common Stock as provided in this Section 2.
2.4 No Fractional Shares or Scrip. No fractional shares
or scrip representing fractional shares of Common Stock shall be issued upon
the exercise of this Warrant. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.
2.5 Exercise for Cash in Certain Circumstances.
Notwithstanding the foregoing, (a) until the fifth anniversary of the Warrant
Issue Date, in the event, and to the
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extent that, the exercise of this Warrant would cause the Total Voting Power of
the Shareholders to exceed the Standstill Percentage, this Warrant shall not be
exercisable for shares of Common Stock but rather shall be exercisable solely
for the difference at the time of exercise between the Market Price and the
Exercise Price at such time and (b) thereafter, in the event, and to the extent
that, the exercise of this Warrant would cause the Total Voting Power of the
Shareholders to exceed 49%, this Warrant shall not be exercisable for shares of
Common Stock but rather shall be exercisable solely for the difference at the
time of exercise between the Market Price and the Exercise Price at such time.
3. Registered Warrants.
3.1 Series. This Warrant is one of a series of Warrants,
designated as Series C, which are identical except as to the number of shares
of Common Stock purchasable and as to any restriction on the transfer thereof
in order to comply with the Securities Act of 1933 (the "Act") and the
regulations of the Securities and Exchange Commission promulgated thereunder or
state securities or blue sky laws. Such Warrants are referred to herein
collectively as the "Warrants."
3.2 Record Ownership. The Company shall maintain a
register of the Holders of the Warrants (the "Register") showing their names
and addresses and the serial numbers and number of Common Shares purchasable,
issued to or transferred of record by them from time to time. The Register may
be maintained in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Warrant in the Register as the
sole owner of this Warrant. The Holder of this Warrant is the person
exclusively entitled to receive notifications with respect to this Warrant,
exercise it to purchase shares of Common Stock and otherwise exercise all of
the rights and powers as the absolute owner hereof.
3.3 Registration of Transfer. To the extent permitted
under the Merger Agreement, transfers of this Warrant may be registered on the
Register. Transfers shall be registered when this Warrant is presented to the
Company duly endorsed with a request to register the transfer hereof in
accordance with the terms of the Merger Agreement. When this Warrant is
presented for transfer and duly transferred hereunder, it shall be cancelled
and a new Warrant showing the name of the transferee as the Holder thereof
shall be issued in lieu hereof. No transfer of this Warrant may take place
except in accordance with the terms of the Merger Agreement.
3.4 Worn and Lost Warrants. If this Warrant becomes
worn, defaced or mutilated but is still substantially intact and recognizable,
the Company or its agent may issue a new Warrant in lieu hereof upon its
surrender. If this Warrant is lost, destroyed or wrongfully taken, the Company
shall issue a new Warrant in place of the original Warrant if the Holder so
requests by written notice to the Company and the Holder has delivered to
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the Company an indemnity agreement reasonably satisfactory to the Company with
an affidavit of the Holder that this Warrant has been lost, destroyed or
wrongfully taken.
3.5 Restrictions on Transfer. (a) This Warrant and the
Common Stock issuable upon the exercise hereof have been registered under the
Act on Form S-4, and therefore this Warrant and the Common Stock issuable upon
the exercise of this Warrant may not be offered for sale, sold or otherwise
transferred unless such offer, sale or other transfer complies with Rule 145
under the Act and is otherwise registered under the appropriate state
securities or Blue Sky laws or such transfer is exempt from such registration.
(b) No transfer of this Warrant or the Common Stock issuable
upon the exercise hereof may be made except in accordance with the terms of the
Merger Agreement.
3.6 Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Register,
issuing Common Stock or other securities then issuable upon the exercise of
this Warrant, exchanging or transferring this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or transfer,
as the case may be, shall be made at the office of such agent.
4. Reservation of Stock. The Company covenants that, during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock or Common Stock held in Treasury a sufficient number
of shares to provide for the issuance of Common Stock upon the exercise of
this Warrant. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, all as
set forth herein, will be duly authorized, validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the exercise of this Warrant.
5. Effects of Certain Events.
5.1 Common Stock Dividends, Subdivisions or Combinations.
In case the Company shall (A) pay or make a dividend or other distribution to
all holders of its Common Stock in shares of its Common Stock, (B) subdivide,
split or reclassify the outstanding shares of its Common Stock into a larger
number of shares or (C) combine or reclassify the outstanding shares of its
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall thereafter be entitled to receive upon the exercise of this Warrant,
subject to Section 2.5, the number of shares of Common Stock which such Holder
would have owned and been entitled to receive had such Warrant been exercised
immediately prior to the happening of any of the
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events described above or, in the case of a stock dividend or other
distribution, prior to the record date for determination of shareholders
entitled thereto. An adjustment made pursuant to this Section 5.1 shall
become effective immediately after such record date in the case of a
dividend or distribution and immediately after the effective date in the
case of a subdivision, split, combination or reclassification.
5.2 Distributions of Assets or Securities Other Than
Common Stock. In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any of its capital stock (other
than Common Stock), rights or warrants to purchase any of its securities (other
than those referred to in Section 5.3 below), cash (other than any regular
quarterly or semi-annual dividend which the Board of Directors of the Company
determines), other assets or evidences of its indebtedness, then in each such
case the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the date of such dividend or distribution by a
fraction, of which the numerator shall be the Average Market Price per share of
Common Stock at the record date for determining shareholders entitled to such
dividend or distribution less the fair market value (as determined in good
faith by the Board of Directors) of the portion of the securities, cash, assets
or evidences of indebtedness so distributed applicable to one share of Common
Stock, and of which the denominator shall be such Average Market Price per
share. An adjustment made pursuant to this Section 5.2 shall become effective
immediately after such record date.
5.3 Below Market Distributions or Issuances. In case the
Company shall issue Common Stock (or rights, warrants or other securities
convertible into or exchangeable or exercisable for shares of Common Stock) to
all holders of Common Stock at a price per share (or having an effective
exercise, exchange or conversion price per share) less than the Average Market
Price per share of Common Stock at the record date for the determination of
shareholders entitled to receive such Common Stock (or rights, warrants or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the date of
issuance of such Common Stock (or rights, warrants or other securities) by a
fraction, the numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the date of such issuance (without giving effect
to any such issuance) and (B) the number of shares which the aggregate
consideration receivable by the Company for the total number of shares of
Common Stock so issued (or into or for which such rights, warrants or other
securities are convertible, exchangeable or exercisable) would purchase at such
Average Market Price, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding on the date of such issuance
(without giving effect to any such issuance) and (B) the number of additional
shares of Common Stock so issued (or into or for which such rights, warrants or
other securities are convertible, exchangeable or exercisable). An adjustment
made pursuant to this Section 5.3 shall become effective immediately after the
record date for determination of shareholders entitled to receive or purchase
such Common Stock (or rights, warrants or other securities convertible into or
exchangeable or exercisable for shares of Common
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Stock). For purposes of this Section 5.3, the issuance of any options, rights
or warrants or any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to any employee (including consultants and directors)
benefit or stock option or purchase plan or program of the Company shall not be
deemed to constitute an issuance of Common Stock or options, rights or warrants
to which this Section 5.3 applies. Notwithstanding anything herein to the
contrary, no further adjustment to the Exercise Price shall be made (i) upon
the issuance or sale of Common Stock upon the exercise of any rights or
warrants or (ii) upon the issuance or sale of Common Stock upon conversion or
exchange of any convertible securities, if any adjustment in the Exercise Price
was made or required to be made upon the issuance or sale of such rights,
warrants or securities.
5.4 Repurchases. In case at any time or from time to
time the Company or any subsidiary thereof shall repurchase, by self tender
offer or otherwise, any shares of Common Stock of the Company at a weighted
average purchase price in excess of the Average Market Price on the business
day immediately prior to the earliest of the date of such repurchase, the
commencement of an offer to repurchase or the public announcement of either
(such date being referred to as the "Determination Date"), the Exercise Price
in effect as of such Determination Date shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which shall be (A) the product
of (x) the number of shares of Common Stock outstanding on such Determination
Date and (y) the Average Market Price of the Common Stock on such Determination
Date minus (B) the aggregate purchase price of such repurchase and the
denominator of which shall be the product of (x) the number of shares of Common
Stock outstanding on such Determination Date minus the number of shares of
Common Stock repurchased by the Company or any subsidiary thereof in such
repurchase and (y) the Average Market Price of the Common Stock on such
Determination Date. For purposes of this clause (iv), the repurchase or
repurchases by the Company or any subsidiary thereof within any 12 month period
of not more than 15% of the shares of Common Stock outstanding as of the first
date of such period, at a price not in excess of 120% of the Average Market
Price as of the Determination Date of any such repurchase, shall not be deemed
to constitute a repurchase to which this Section 5.4 applies. An adjustment
made pursuant to this Section 5.4 shall become effective immediately after the
effective date of such repurchase.
6. Certain Reorganizations. In the event of any change,
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company (other than any reclassification referred to in
Section 5.1), whether pursuant to a merger, consolidation, reorganization or
otherwise, or the sale or other disposition of all or substantially all of the
assets and properties of the Company, this Warrant shall, after such merger,
consolidation, reorganization or other transaction, sale or other disposition,
be exercisable for the kind and number of shares of stock or other securities
or property, of the Company or otherwise, to which the Holder would have been
entitled if immediately prior to such event such Holder had exercised this
Warrant for Common Stock at the Exercise Price in effect as of the consummation
of such event. The provisions of this Section 6 shall
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similarly apply to successive changes, reclassifications, conversions, exchange
or cancellations.
7. No Impairment. Except as permitted by the Merger Agreement,
the Company will not, by amendment of its Restated Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder hereof against impairment.
8. Calculation of Adjustments. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this Section 8 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Warrant shall be made by the Company and shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
Anything in this Warrant to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
required by this Warrant, as it in its sole discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter made by the
Company to its shareholders shall not be taxable.
9. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Warrant, the
Company at its expense shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and furnish to the Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the Holder of this Warrant,
furnish or cause to be furnished to such Holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Exercise Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the exercise
of this Warrant; provided, however, that the Company shall not be required to
calculate the effect of Section 2.5 upon such exercise.
10. Notices.
10.1 Dilutive Events. In the event that the Company shall
propose at any time:
(1) to declare any dividend or distribution upon its Common
Stock;
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(2) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights; or
(3) to effect any transaction of the type described in Section
6 hereof involving a change in the Common Stock;
then, in connection with each such event, the Company shall send to the Holders
of this Warrant:
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend or distribution (and specifying
the date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (1) and (2)
above; and
(B) in the case of the matters referred to in (3) above, at
least 20 days' prior written notice of the date when the same shall take place
(and specifying the time on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property deliverable
upon the occurrence of such event).
10.2 Dissolution; Liquidation. In the event of any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall send to the Holder of this Warrant at least 20 days' prior
written notice.
10.3 Repurchase Programs. The Company shall send written
notice immediately upon any public announcement with respect to an open market
repurchase program, any self tender offer for shares of Common Stock and any
other repurchase other than a repurchase of stock of an employee or consultant
pursuant to any benefit plan or agreement.
11. Amendments. This Warrant may not be amended without the prior
written consent of the Holder.
12. Additional Definition. As used herein, the term "Average
Market Price" shall mean the average of the Market Prices for the 30
consecutive trading immediately preceding the date in question.
13. Notices. Any notice, certificate or other communication which
is required or convenient under the terms of this Warrant shall be duly given
if it is in writing and delivered in person or mailed by first class mail,
postage prepaid, and directed to the Holder of the Warrant at its address as it
appears on the Register or if to the Company to its principal executive
offices. The time when such notice is sent shall be the time of the giving of
the notice.
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14. Time. Where this Warrant provides for a payment or
performance on a Saturday or Sunday or a public holiday in the State of Ohio,
such payment or performance may be made on the next succeeding business day,
without liability of the Company for interest on any such payment.
15. Rules of Construction. In this Warrant, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates, words of the neuter
gender may refer to any gender. The numbers and titles of sections contained
in this Warrant are inserted for convenience of reference only, and they
neither form a part of this Warrant nor are they to be used in the construction
or interpretation hereof.
16. Governing Law. This Warrant shall be construed in accordance
with and governed by the law of the State of Ohio.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereto duly authorized.
THE SCOTTS COMPANY
By:
---------------------------------
Name:
Title:
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Assignment of Warrant
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
of this Warrant.
___________________________________________
(portion of Warrant)
Date:_______________________ Sign:
---------------------------------------
(Signature must conform in all respects
to name of Holder shown on face of
Warrant)
Signature Guaranteed:
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Notice of Exercise
[To be completed and signed only upon exercise of Warrant]
The undersigned, the Holder of this Warrant, hereby irrevocably elects
to exercise the right to purchase Common Stock, without par value, of The
Scotts Company as follows:
---------------------------------------------------
(whole number of Warrants exercised)
Dollars ($ )
---------------------------------------------------
(number of Warrants exercised times Exercise Price)
Shares ( )
---------------------------------------------------
Dollars ($ )
---------------------------------------------------
(number of shares and Market Price of Common
Stock in cashless exercise)
[Signature must be ---------------------------------------------------
guaranteed if name of (name of holder of shares if different than
holder of shares differs Holder of Warrant)
from registered Holder
of Warrant]
---------------------------------------------------
(address of holder of shares if different
than address of Holder of Warrant)
---------------------------------------------------
(Social Security or EIN of holder of shares
if different than Holder of Warrant)
Date: ___________________ Sign:
------------------------------------------
(Signature must conform in all respects to
name of Holder shown on face of this
Warrant)
Signature Guaranteed:
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RECEIPT FOR WARRANTS
Each of the undersigned individuals hereby acknowledges receipt from
The Scotts Company (the "Company") on this [31]st day of [March], 1995, of a
separate warrant for the purchase of that number of common shares of the
Company indicated opposite the signature of each undersigned individual,
respectively, subject to the terms and conditions contained in the warrant.
SIGNATURE NUMBER OF SHARES
- --------- ----------------
- ------------------------------
Horace Hagedorn
- ------------------------------
James Hagedorn
- ------------------------------
Katherine Hagedorn Littlefield
- ------------------------------
Paul Hagedorn
- ------------------------------
Robert Hagedorn
- ------------------------------
Susan Hagedorn
- ------------------------------
John Kenlon
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APPENDIX II
January 26, 1995
The Board of Directors
The Scotts Company
1411 Scottlawn Road
Marysville, OH 43041
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to The Scotts Company ("Scotts") of the value of the Merger Consideration
(as defined herein) to be paid by Scotts pursuant to the terms and subject to
the conditions set forth in the Agreement and Plan of Merger, dated as of
January 26, 1995 (the "Merger Agreement"), by and between Scotts and Stern's
Miracle-Gro Products, Inc. ("Miracle-Gro Products"), Stern's Nurseries, Inc.
("Nurseries"), Miracle-Gro Lawn Products, Inc. ("Miracle-Gro Delaware") and
Miracle-Gro Products Limited ("Miracle-Gro UK", and collectively with
Miracle-Gro Products, Nurseries and Miracle-Gro Delaware, "Miracle-Gro") and
the shareholders of Miracle-Gro. As more fully described in the Merger
Agreement, and subject to the terms and conditions set forth therein, (i)(a) a
direct, wholly-owned subsidiary of Scotts will be merged with and into
Miracle-Gro Products, (b) immediately thereafter Nurseries will transfer all of
its assets (but not its liabilities), to Miracle-Gro Products, and Miracle-Gro
Delaware and Miracle-Gro UK will each merge with and into Miracle-Gro Products,
and (c) immediately thereafter, Miracle-Gro Products shall be merged with and
into a direct, wholly-owned subsidiary of Scotts (collectively, the "Merger")
and (ii) collectively, as a group, the shareholders of Miracle-Gro will receive
in the aggregate (a) $195 million face amount (195,000 shares) of Class
Convertible Preferred Stock (as more fully described in the Merger Agreement)
and (b) three million warrants divided equally into three tranches of one
million each (as more fully described in the Merger Agreement) (collectively,
the "Warrants", and, collectively with the Class A Convertible Preferred Stock,
the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Scotts and certain senior officers and other representatives
and advisors of Miracle-Gro concerning the business, operations and prospects
of Scotts and Miracle-Gro. We examined certain publicly available business and
financial information relating to Scotts and Miracle-Gro as well as certain
financial forecasts and other data for Scotts and Miracle-Gro which were
provided to us by the respective managements of Scotts and Miracle-Gro. We
reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of the Scotts Common Stock; the respective companies'
historical market prices and trading volumes of the Scotts Common Stock; the
respective companies' historical and projected earnings; and the capitalization
and financial condition of Scotts and Miracle-Gro. We considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected which we considered comparable to the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered comparable to those of Scotts and Miracle-Gro. We also evaluated
the potential pro forma financial impact of the Merger on Scotts. In addition
to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
With respect to financial forecasts and other information provided to or
otherwise discussed with us, we have been advised by the respective managements
of Scotts and Miracle-Gro that such forecasts and other information were
reasonably prepared on bases reflecting their best currently available
estimates and judgments as to the expected future financial performance of
Scotts and Miracle-Gro. We also assumed that the Merger will be treated as a
tax-free reorganization for federal income tax purposes. Our opinion, as set
forth herein, relates to the relative values of Scotts and Miracle-Gro. We are
not expressing any opinion as to what the value of the Merger Consideration
actually will be when issued pursuant to the Merger or the price at which the
Scotts Common Stock
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will trade subsequent to the Merger. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Scotts or Miracle-Gro nor have we made any physical inspection of
the properties or assets of Scotts or Miracle-Gro. We have not been asked to
consider, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for Scotts
or the effect of any other transaction in which Scotts might engage. Our
opinion is necessarily based upon financial, stock market and other conditions
and circumstances existing and disclosed to us as of the date hereof.
Smith Barney Inc. ("Smith Barney") has been engaged to render financial
advisory services to Scotts in connection with the Merger and will receive a
fee for our services, a significant portion of which is contingent upon the
consummation of the Merger. We also will receive a fee upon the delivery of
this opinion. In the ordinary course of our business, we may actively trade
the equity and debt securities of Scotts for our own account or for the account
of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of Scotts in its evaluation of the proposed
Merger and are not on behalf of, and are not intended to confer rights or
remedies upon, Miracle-Gro, any shareholder of Scotts or Miracle-Gro, or any
person other than Scotts Board of Directors. Our opinion may not be published
or otherwise used or referred to, nor shall any public reference to Smith
Barney be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that as of the date hereof, the value of the Merger Consideration is
fair, from a financial point of view, to Scotts.
Very truly yours,
SMITH BARNEY INC.
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APPENDIX III
ACQUIRING PERSON STATEMENT
Pursuant to Section 1701.831 of
the Ohio Revised Code
THE SCOTTS COMPANY
(Names of Issuing Public Corporation)
This Acquiring Person Statement is being delivered to The
Scotts Company, an Ohio corporation ("Scotts"), pursuant to Section 1701.831 of
the Ohio Revised Code by Horace Hagedorn, James Hagedorn, Katherine Hagedorn
Littlefield, Paul Hagedorn, Peter Hagedorn, Robert Hagedorn, Susan Hagedorn and
John Kenlon (collectively, the "Shareholders") and relates to the transactions
contemplated by the Agreement and Plan of Merger, dated as of January 26, 1995,
among Stern's Miracle-Gro Products, Inc., Stern's Nurseries, Inc., Miracle-Gro
Lawn Products Inc., Miracle-Gro Products Limited, the Shareholders, Scotts and
ZYX Corporation (the "Merger Agreement"). The Shareholders may transfer shares
of Scotts to a partnership, in which case the term "Shareholders" shall be
deemed to include such partnership.
Item 1. Identity of the Acquiring Person.
The acquiring persons are the Shareholders.
Item 2. Delivery of Acquiring Person Statement.
This Acquiring Person Statement is given pursuant to Section
1701.831 of the Ohio Revised Code.
Item 3. Ownership of Shares by Acquiring Person.
None of the Shareholders owns, directly or indirectly, any shares of Scotts.
Item 4. Range of Voting Power.
The Shareholders propose to acquire one-third or more but less
than a majority of Scotts' voting power, as described in subparagraph (b) of
paragraph (Z)(1) of Section 1701.01 of the Ohio Revised Code.
Item 5. Terms of the Proposed Control Share Acquisition.
The proposed control share acquisition is to be made pursuant
to the terms of the Merger Agreement, which is incorporated herein by
reference.
Item 6. Representation of Legality; Financial Capacity.
The Shareholders hereby represent that proposed control share
acquisition, if consummated, will not be contrary to law. The information set
forth in the Merger Agreement and in the Proxy Statement/Prospectus included in
Scotts' Registration Statement on Form S-4, filed with the Securities and
Exchange Commission on February 3, 1995, is incorporated herein by reference.
/s/ Horace Hagedorn
-------------------------------
HORACE HAGEDORN
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/s/ James Hagedorn
----------------------------------
JAMES HAGEDORN
/s/ Katherine Hagedorn Littlefield
----------------------------------
KATHERINE HAGEDORN LITTLEFIELD
/s/ Paul Hagedorn
----------------------------------
PAUL HAGEDORN
/s/ Peter Hagedorn
----------------------------------
PETER HAGEDORN
/s/ Robert Hagedorn
----------------------------------
ROBERT HAGEDORN
/s/ Susan Hagedorn
----------------------------------
SUSAN HAGEDORN
/s/ John Kenlon
----------------------------------
JOHN KENLON
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APPENDIX IV
PROPOSED AMENDED ARTICLE FOURTH OF
THE AMENDED ARTICLES OF INCORPORATION
FOURTH: The authorized number of shares of the corporation shall be
Fifty Million, One Hundred and Ninety-Five Thousand (50,195,000), consisting of
Fifty Million (50,000,000) common shares, each without par value, and One
Hundred and Ninety-Five Thousand (195,000) shares of Class A Convertible
Preferred Stock, without par value (the "Class A Preferred").
The following is a statement of the express terms, powers,
preferences, rights, qualifications, limitations and restrictions of the Class
A Preferred:
1. Authorized Number. The number of shares constituting the Class A
Preferred shall be One Hundred Ninety-Five Thousand (195,000) shares.
2. Dividends. (a) The holders of the Class A Preferred shall be
entitled to receive, ratably with the holders of any other class of the
corporation's capital stock with Parity Rights (as defined below) as to
dividends based on their respective dividend rates, annual cumulative dividends
in cash on each outstanding share of Class A Preferred at the rate of $50.00
per share per annum. Such cumulative dividends shall be paid in equal amounts
(other than with respect to the initial dividend period) quarterly on June 30,
September 30, December 31 and March 31 of each year (unless such day is not a
business day, in which event on the next business day) as declared by the
directors to the extent legally permitted, to holders of record as they appear
on the register for the Class A Preferred on the June 15, September 15,
December 15 and March 15 immediately preceding the relevant Dividend Payment
Date (as hereinafter defined), out of any funds at the time legally available
therefor; shall accrue until so paid from the date of issuance of the
applicable shares of Class A Preferred; and shall be deemed to accrue from day
to day, whether or not declared. A quarterly dividend period shall begin on
the day following each June 30, September 30, December 31 and March 31 (each a
"Dividend Payment Date," whether or not a dividend is paid on such date) and
end on the next succeeding Dividend Payment Date. Notwithstanding the
foregoing, the first quarterly dividend period shall commence on the date of
issue, and such dividend shall be paid on June 30, 1995 for the actual number
of days in such period. If dividends shall not have been paid, or declared and
set apart for payment, upon all outstanding shares of Class A Preferred at the
aforesaid times and rates, such deficiency shall be cumulative in full. Any
accumulation of dividends shall not bear interest.
(b) No dividends or other distribution (other than dividends payable
in common shares), and no redemption, purchase or other acquisition for value
(other than redemptions, purchases or acquisitions payable in common shares or
repurchases of common shares from employees of the corporation pursuant to
obligations existing as of the date hereof or upon foreclosure pursuant to
loans existing as of the date hereof to employees of the corporation secured by
common shares), shall be made with respect to the common shares or any other
class or series of the corporation's capital stock ranking junior to the Class
A Preferred with respect to dividends or liquidation preferences until
cumulative dividends on the Class A Preferred in the full amounts as set forth
above for all dividend periods ending, and all amounts payable upon redemption
of Class A Preferred, on or prior to the date on which the proposed dividend or
distribution is paid, or the proposed redemption, purchase or other acquisition
is effected, have been declared and paid or set apart for payment.
(c)(i) If on any Dividend Payment Date all or any portion of any
dividend payable on such date is not so paid and at such time all or any
portion of the dividend payable on the next preceding Dividend Payment Date
remains in arrears, then from such second Dividend Payment Date, until all
accrued and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Class A Preferred
then outstanding shall have been declared and paid (herein a "Default Period"),
the holders of Class A Preferred, voting separately as a class, shall have the
right to increase the number of directors by three and to elect three directors
designated by the Shareholder Representative (as defined in the Merger
Agreement) to fill the vacancies so created.
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(ii) After the holders of Class A Preferred shall have exercised their
right to elect directors pursuant to subparagraph (i) hereof, and during the
continuance of such Default Period, the number of directors may not be
increased or decreased except by vote of the holders of Class A Preferred,
voting separately as a separate class.
(iii) Immediately upon the expiration of a Default Period, (x) the
right of the holders of Class A Preferred Stock as a class to elect directors
pursuant to this Section 2(c) shall cease, (y) the term of any directors
elected by the holders of Class A Preferred as a class pursuant to this Section
2(c) shall terminate, and (z) the number of directors shall be such number as
was in effect immediately prior to the increase pursuant to this Section 2(c).
3. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the corporation, either voluntary or involuntary,
distributions to the shareholders of the corporation shall be made in the
following manner:
(a) The holders of the Class A Preferred shall be entitled to receive,
ratably with the holders of any other class or series of the corporation's
capital stock with Parity Rights (as defined below) as to liquidation
preferences based on their respective preference amounts (which, in the case of
the Class A Preferred, shall include any amounts owing in respect of accrued
and unpaid dividends), prior and in preference to any distribution of any of
the assets or funds of the corporation to the holders of the common shares (or
any other securities of the corporation ranking junior to the Class A Preferred
as to liquidation preferences), the preference amount (in cash) of $1,000 per
share for each share of Class A Preferred then held by them plus an amount
equal to all accrued but unpaid dividends (whether or not declared) on the
Class A Preferred to the date of liquidation, dissolution or winding up. If
the assets and funds thus distributed among the holders of the Class A
Preferred and of any other class or series of the corporation's capital stock
with Parity Rights as to liquidation preferences are insufficient to permit the
payment to such holders of the full preferential amount described above, then
the entire assets and funds of the corporation legally available for
distribution shall be distributed among the holders of the Class A Preferred
and of any other class or series of the corporation's capital stock with Parity
Rights as to liquidation preferences in the proportion that the aggregate
preferential amount of shares of Class A Preferred and of any other class or
series of the corporation's capital stock with Parity Rights as to liquidation
preferences held by each such holder bears to the aggregate preferential amount
of all shares of Class A Preferred and of any other class or series of the
corporation's capital stock with Parity Rights as to liquidation preferences.
After payment has been made to the holders of the Class A Preferred and of any
other class or series of the corporation's capital stock with Parity Rights as
to liquidation preferences of the full amounts to which they are entitled, no
further amounts shall be paid with respect to the Class A Preferred, and the
remaining assets of the corporation shall be distributed among the holders of
the common shares (and other junior securities with regard to liquidation
preferences) in accordance with the Amended Articles of Incorporation and
applicable law.
(b) For purposes of this Section 3, a merger or consolidation of the
corporation with or into any other corporation or corporations in which the
corporation is not the surviving corporation, or a voluntary sale of all or
substantially all of the assets of the corporation, shall not be treated as a
liquidation, dissolution or winding up of the corporation (unless in connection
therewith, the liquidation, dissolution or winding up of the corporation is
specifically approved), but shall be treated as provided in Section 6(e) of
this Article FOURTH.
4. Provisions Generally Applicable to Dividends and Liquidation.
(a) The term "Parity Rights," as used in this Article FOURTH of the
Amended Articles of Incorporation, shall mean dividend rights and liquidation
preferences of any class or series of the corporation's capital stock which has
preferences upon any liquidation, dissolution, or winding up of the corporation
or rights with respect to the declaration, payment and setting aside of
dividends on a parity with those of the Class A Preferred.
(b) Except as otherwise permitted by the Agreement and Plan of Merger
dated as of January 26, 1995 among Stern's Miracle-Gro Products, Inc., Stern's
Nurseries, Inc., Miracle-Gro Lawn Products Inc., Miracle-Gro Products Limited,
the Shareholders listed therein, the corporation and ZYX Corporation (the
"Merger Agreement"), the corporation will not, by amendment of its Amended
Articles of Incorporation or through any
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reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of Sections 2 and 3 of this Article FOURTH
and in the taking of all such action as may be necessary or appropriate in
order to protect the dividend and liquidation rights of the holders of the
Class A Preferred against impairment; provided, however, that nothing herein
will prevent the corporation from creating any new class or series of capital
stock with higher dividend rates or liquidation payments so long as the
priority of such rights is not senior to the rights of the Class A Preferred.
5. Voting Rights. Except as otherwise required by law, the holder of
each share of Class A Preferred shall be entitled to the number of votes equal
to the number of common shares into which such share of Class A Preferred could
be converted at the record date for determination of the shareholders entitled
to vote on such matters, such votes to be counted together with all other
shares of capital stock of the corporation having general voting power and not
separately as a class or series. Holders of Class A Preferred shall be
entitled to receive the same notice of any shareholders' meeting as is provided
to holders of common shares. Fractional votes by the holders of Class A
Preferred shall not, however, be permitted, and any fractional voting rights
shall (after aggregating all shares into which shares of Class A Preferred held
by each holder could be converted) be rounded to the nearest whole number. The
corporation will, or will cause its transfer agent or registrar to, transmit to
the registered holders of the Class A Preferred all reports and communications
from the corporation that are generally mailed to holders of its common shares.
6. Conversion. The holders of the Class A Preferred have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Class A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share and prior to the close of business of the corporation on
the business day next preceding any date set for the redemption thereof
(provided that funds sufficient to redeem all shares to be redeemed on such
date have been paid or made available for payment as described in Section
7(b)(iii) of this Article FOURTH), at the office of the corporation or any
transfer agent for the Class A Preferred, into such number of fully paid and
nonassessable common shares as is determined by dividing $1,000 by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The price at which common shares shall be deliverable upon
conversion (the "Conversion Price") shall initially be $19 per common share.
Such initial Conversion Price shall be subject to adjustment as hereinafter
provided.
(b) Accrued Dividends and Fractional Shares. Dividends shall cease to
accrue on shares of Class A Preferred surrendered for conversion into common
shares; provided, however, that any dividends (whether or not declared) upon
such shares which were accrued as of but not paid on or before the Dividend
Payment Date immediately preceding the conversion date shall be paid in cash
upon such conversion or as soon thereafter as permitted by law.
No fractional common shares shall be issued upon conversion of Class A
Preferred. In lieu of any fractional shares to which the holder would
otherwise be entitled, the corporation shall, after aggregation of all
fractional share interests held by each holder, pay cash equal to such
remaining fractional interest multiplied by the Market Price (as defined in
Section 11 of this Article FOURTH) at the time of conversion.
(c) Mechanics of Conversion. Before any holder of Class A Preferred
shall be entitled to convert the same into full common shares of the
corporation and to receive certificates therefor, such holder shall surrender
the certificate or certificates for the Class A Preferred to be converted, duly
endorsed, at the office of the corporation or of any transfer agent for the
Class A Preferred, and shall give written notice to the corporation at such
office that such holder elects to convert the same. The corporation shall, as
soon as practicable after such delivery, issue and deliver at such office to
such holder of Class A Preferred (or to any other person specified in the
notice delivered by such holder), a certificate or certificates for the number
of common shares to which such holder shall be entitled as aforesaid and a
check payable to the holder for any cash amounts payable as the result of a
conversion into
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fractional common shares. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Class A Preferred to be converted, and the person or persons entitled
to receive the common shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such common shares on such
date. In case any certificate for shares of Class A Preferred shall be
surrendered for conversion of only a part of the shares represented thereby,
the corporation shall deliver at such office to or upon the written order of
the holder thereof, a certificate or certificates for the number of shares of
Class A Preferred represented by such surrendered certificate which are not
being converted. Notwithstanding the foregoing, the corporation shall not be
obligated to issue certificates evidencing the common shares issuable upon such
conversion unless the certificates evidencing Class A Preferred are either
delivered to the corporation or its transfer agent, or the holder notifies the
corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the corporation to
indemnify the corporation from any loss incurred by it in connection with such
certificates. The issuance of certificates for common shares issuable upon
conversion of shares of Class A Preferred shall be made without charge to the
converting holder for any tax imposed in respect of the issuance thereof;
provided that the corporation shall not be required to pay any tax which may be
payable with respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of the holder of the shares of Class A
Preferred being converted.
(d) Effects of Certain Events.
(i) Common Share Dividends, Subdivisions or Combinations. In case the
corporation shall (A) pay or make a dividend or other distribution to all
holders of its common shares in common shares, (B) subdivide, split or
reclassify the outstanding number of common shares into a larger number of
common shares or (C) combine or reclassify the outstanding number of its common
shares into a smaller number of common shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of each
outstanding share of Class A Preferred shall thereafter be entitled to receive
upon the conversion of such share the number of common shares which such holder
would have owned and been entitled to receive had such shares of Class A
Preferred been converted immediately prior to the happening of any of the
events described above or, in the case of a stock dividend or other
distribution, prior to the record date for determination of shareholders
entitled thereto. An adjustment made pursuant to this clause (i) shall become
effective immediately after such record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, split, combination or reclassification.
(ii) Distributions of Assets or Securities Other Than Common Shares.
In case the corporation shall, by dividend or otherwise, distribute to all
holders of its common shares, shares of any of its capital stock (other than
common shares), rights or warrants to purchase any of its securities (other
than those referred to in (iii) below), cash (other than any regular quarterly
or semi-annual dividend which the directors of the corporation declares), other
assets or evidences of its indebtedness, then in each such case the Conversion
Price shall be adjusted by multiplying the Conversion Price in effect
immediately prior to the date of such dividend or distribution by a fraction,
of which the numerator shall be the Average Market Price (as defined in Section
11 of this Article FOURTH) per common share at the record date for determining
shareholders entitled to such dividend or distribution less the fair market
value (as determined in good faith by the directors) of the portion of the
securities, cash, assets or evidences of indebtedness so distributed applicable
to one common share, and of which the denominator shall be such Average Market
Price per common share. An adjustment made pursuant to this clause (ii) shall
become effective immediately after such record date.
(iii) Below Market Distributions or Issuances. In case the
corporation shall issue common shares (or rights, warrants or other securities
convertible into or exchangeable or exercisable for common shares) to all
holders of common shares at a price per share (or having an effective exercise,
exchange or conversion price per share) less than the Average Market Price per
common share at the record date for the determination of shareholders entitled
to receive such common shares (or rights, warrants or other securities
convertible into or exchangeable or exercisable for common shares), then in
each such case the Conversion Price shall be adjusted by multiplying the
Conversion Price in effect immediately prior to the date of issuance of such
common shares (or rights, warrants or other securities) by a fraction, the
numerator of which shall be the sum of (A) the number of
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common shares outstanding on the date of such issuance (without giving effect
to any such issuance) and (B) the number of common shares which the aggregate
consideration receivable by the corporation for the total number of common
shares so issued (or into or for which such rights, warrants or other
securities are convertible, exchangeable or exercisable) would purchase at such
Average Market Price, and the denominator of which shall be the sum of (A) the
number of common shares outstanding on the date of such issuance (without
giving effect to any such issuance) and (B) the number of additional common
shares so issued (or into or for which such rights, warrants or other
securities are convertible, exchangeable or exercisable). An adjustment made
pursuant to this clause (iii) shall become effective immediately after the
record date for determination of shareholders entitled to receive or purchase
such common shares (or rights, warrants or other securities convertible into or
exchangeable or exercisable for common shares). For purposes of this clause
(iii), the issuance of any options, rights or warrants or any common shares
(whether treasury shares or newly issued shares) pursuant to any employee
(including consultants and directors) benefit or stock option or purchase plan
or program of the corporation shall not be deemed to constitute an issuance of
common shares or options, rights or warrants to which this clause (iii)
applies. Notwithstanding anything herein to the contrary, no further
adjustment to the Conversion Price shall be made (i) upon the issuance or sale
of common shares upon the exercise of any rights or warrants or (ii) upon the
issuance or sale of common shares upon conversion or exchange of any
convertible securities, if any adjustment in the Conversion Price was made or
required to be made upon the issuance or sale of such rights, warrants or
securities.
(iv) Repurchases. In case at any time or from time to time the
corporation or any subsidiary thereof shall repurchase, by self tender offer or
otherwise, any common shares of the corporation at a weighted average purchase
price in excess of the Average Market Price on the business day immediately
prior to the earliest of the date of such repurchase, the commencement of an
offer to repurchase or the public announcement of either (such date being
referred to as the "Determination Date"), the Conversion Price in effect as of
such Determination Date shall be adjusted by multiplying such Conversion Price
by a fraction, the numerator of which shall be (A) the product of (x) the
number of common shares outstanding on such Determination Date and (y) the
Average Market Price of the common shares on such Determination Date minus (B)
the aggregate purchase price of such repurchase and the denominator of which
shall be the product of (x) the number of common shares outstanding on such
Determination Date minus the number of common shares repurchased by the
corporation or any subsidiary thereof in such repurchase and (y) the Average
Market Price of the common shares on such Determination Date. For purposes of
this clause (iv), the repurchase or repurchases by the corporation or any
subsidiary thereof within any 12 month period of not more than 15% of the
common shares outstanding as of the first date of such period, at a price not
in excess of 120% of the Average Market Price as of the Determination Date of
any such repurchase, shall not be deemed to constitute a repurchase to which
this clause (iv) applies. An adjustment made pursuant to this clause (iv)
shall become effective immediately after the effective date of such repurchase.
(e) Certain Reorganizations. In the event of any change,
reclassification, conversion, exchange or cancellation of outstanding common
shares of the corporation (other than any reclassification referred to in
Section 6(d)(i) in this Article FOURTH), whether pursuant to a merger,
consolidation, reorganization or otherwise, or the sale or other disposition of
all or substantially all of the assets and properties of the corporation, the
shares of Class A Preferred shall, after such merger, consolidation,
reorganization or other transaction, sale or other disposition, be convertible
into the kind and number of shares of stock or other securities or property, of
the corporation or otherwise, to which such holder would have been entitled if
immediately prior to such event such holder had converted its shares of Class A
Preferred into common shares at the Conversion Price in effect as of the
consummation of such event. The provisions of this Section 8(e) shall
similarly apply to successive changes, reclassifications, conversions, exchange
or cancellations.
(f) No Impairment. Except as permitted by the Merger Agreement, the
corporation will not, by amendment of its Amended Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Class A Preferred
against impairment.
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(g) Calculation of Adjustments. No adjustment in the Conversion Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments which by
reason of this subsection (g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6 shall be made by the corporation and shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
Anything in this Section 6 to the contrary notwithstanding, the corporation
shall be entitled to make such reductions in the Conversion Price, in addition
to those required by this Section 6, as it in its sole discretion shall
determine to be advisable in order that any stock dividends, subdivision of
shares, distribution of rights to purchase stock or securities, or a
distribution of securities convertible into or exchangeable for stock hereafter
made by the corporation to its shareholders shall not be taxable.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Class A Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The corporation shall, upon the written request at any time of any
holder of Class A Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments; (ii) the
Conversion Price at the time in effect; and (iii) the number of common shares
and the amount, if any, of other property which at the time would be received
upon the conversion of Class A Preferred.
(i) Notices.
(A) In the event that the corporation shall propose at any
time:
(1) to declare any dividend or distribution upon its common
shares;
(2) to offer for subscription pro rata to the holders of any
class or series of its capital stock any additional shares of stock of
any class or series or other rights; or
(3) to effect any transaction of the type described in Section
6(e) hereof involving a change in the common shares;
then, in connection with each such event, the corporation shall send to the
holders of the Class A Preferred:
(i) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend or
distribution (and specifying the date on which the holders of
common shares shall be entitled thereto) or for determining
rights to vote in respect of the matters referred to in (1)
and (2) above; and
(ii) in the case of the matters referred to in (3)
above, at least 20 days' prior written notice of the date when
the same shall take place (and specifying the date on which
the holders of common shares shall be entitled to exchange
their common shares for securities or other property
deliverable upon the occurrence of such event).
(B) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the corporation, the corporation shall
send to the holders of the Class A Preferred at least 20 days' prior
written notice.
(C) The corporation shall send written notice immediately upon
any public announcement with respect to an open market repurchase
program, any self tender offer for common shares and any other
repurchase other than a repurchase of stock of an employee or
consultant pursuant to any benefit plan or agreement.
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7. Redemption.
(a) Redemption. The Class A Preferred shall not be subject to
redemption prior to the last day of the month in which the fifth anniversary of
the original date of issuance occurs. On or after such date, the corporation
may, at its option, redeem all or from time to time any part of the shares of
Class A Preferred, out of funds legally available therefor, upon giving the
Redemption Notice as set forth in Section 7(b) of this Article FOURTH. The
redemption payment for each share of Class A Preferred shall be an amount (the
"Redemption Payment") in cash equal to the sum of (i) the amount of all accrued
and unpaid dividends (whether or not declared) thereon to and including the
date fixed for redemption, plus (ii) $1,000. In the event of a redemption of
only a part of the then outstanding Class A Preferred, the corporation shall
effect such redemption ratably according to the number of shares held by each
holder of Class A Preferred.
(b) Mechanics of Redemption.
(i) At least 30 days, but no more than 60 days, prior to the date
fixed for any redemption pursuant to Section 7(a) of this Article FOURTH (the
"Redemption Date"), the corporation shall send a written notice (the
"Redemption Notice") to the holders of shares to be redeemed on such date (the
"Redemption Shares") stating: (A) the total number of shares being redeemed;
(B) the number of Redemption Shares held by such holder; (C) the Redemption
Date and the Redemption Payment; (D) the date on which such holder's conversion
rights as to such shares shall terminate; and (E) the manner in which and the
place at which such holder is to surrender to the corporation the certificate
or certificates representing the Redemption Shares.
(ii) Upon the surrender to the corporation, in the manner and at the
place designated, of a certificate or certificates representing Redemption
Shares, the Redemption Payment for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof. All such surrendered certificates shall be canceled. Upon redemption
of only a portion of the shares of Class A Preferred represented by a
certificate surrendered for redemption, the corporation shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered,
at the expense of the corporation (except for expenses relating to the issuance
of such shares to a person other than the record holder of the Redemption
Shares), a new certificate representing the unredeemed shares of Class A
Preferred represented by the certificate so surrendered.
(iii) On or prior to the Redemption Date, the corporation shall have
the option to deposit the aggregate of all Redemption Payments for all
Redemption Shares (other than Redemption Shares surrendered for conversion
prior to such date) in a bank or trust company (designated in the notice of
such redemption) doing business in the State of Ohio or the City of New York,
having aggregate capital and surplus in excess of $500,000,000, as a trust fund
for the benefit of the respective holders of Redemption Shares, with
irrevocable instructions and authority to the bank or trust company to pay the
appropriate Redemption Payment to the holders of Redemption Shares upon receipt
of notification from the Company that such holder has surrendered the
certificate representing such shares to the corporation. Such instructions
shall also provide that any such moneys remaining unclaimed at the expiration
of one year following the Redemption Date shall thereafter be returned to the
corporation upon its request as expressed in a resolution of its directors.
The holder of any Redemption Shares in respect of which such deposit has been
returned to the corporation pursuant to the preceding sentence shall have a
claim as an unsecured creditor against the corporation for the Redemption
Payment in respect thereof, without interest.
(iv) Provided that the corporation has given the Redemption Notice
described in Section 7(b)(i) of this Article FOURTH and has on or prior to the
Redemption Date either paid or made available (as described in Section
7(b)(iii) of this Article FOURTH) Redemption Payments to the holders of
Redemption Shares, all Redemption Shares shall be deemed to have been redeemed
as of the close of business of the corporation on the applicable Redemption
Date. Thereafter, the holder of such shares shall no longer be treated for any
purposes as the record holder of such shares of Class A Preferred, regardless
of whether the certificates representing such shares are surrendered to the
corporation or its transfer agent, excepting only the right of the holder to
receive the appropriate
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Redemption Payment, without interest, upon such surrender. Such shares so
redeemed shall not be transferred on the books of the corporation or be deemed
to be outstanding for any purpose whatsoever.
(v) The corporation shall not be obligated to pay the Redemption
Payment to any holder of Redemption Shares unless the certificates evidencing
such shares are either delivered to the corporation or its transfer agent, or
the holder notifies the corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the corporation to indemnify the corporation from any loss
incurred by it in connection with such certificates.
(c) Limitation on Redemption. The corporation shall not be obligated
to redeem any shares of Class A Preferred which have previously been converted
into common shares. The corporation shall not be obligated to redeem shares
pursuant to this Section 7 if such redemption would violate any provisions of
applicable law. If, after giving the Redemption Notice, the corporation is
unable, pursuant to applicable law, to redeem some or all unconverted
Redemption Shares on any particular Redemption Date, the corporation shall
promptly notify the holders thereof of the facts that prevent the corporation
from so redeeming such shares. Thereafter, the corporation shall redeem such
unredeemed Redemption Shares at such time as it is lawfully able to do so.
8. Status of Converted Shares. If shares of Class A Preferred are
converted pursuant to Section 6 of this Article FOURTH or redeemed pursuant to
Section 7 of this Article FOURTH, the shares so converted or redeemed shall
resume the status of authorized but unissued shares of Class A Preferred unless
otherwise prohibited by applicable law.
9. Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or when sent by telegram or telecopier (with receipt
confirmed), provided a copy is also sent by express (overnight, if possible)
courier, addressed (i) in the case of a holder of Class A Preferred, to such
holder's address of record, and (ii) in the case of the corporation, to the
corporation's principal executive offices to the attention of the corporation's
secretary.
10. Amendments and Waivers. Any right, preference, privilege or
power of, or restriction provided for the benefit of, the Class A Preferred set
forth herein may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively) with the written consent of the corporation and the affirmative
vote or written consent of the holders of not less than a majority of the
shares of Class A Preferred then outstanding, and any amendment or waiver so
effected shall be binding upon the corporation and all holders of Class A
Preferred.
11. Additional Definitions. As used herein the term "Trading Day"
means each Monday, Tuesday, Wednesday, Thursday and Friday which is a day on
which the New York Stock Exchange, Inc. is open for trading.
As used herein, the term "Market Price" of a common share or of any
other security of the corporation on any date shall mean: (i) the last
reported sales price of the common shares or such other security on the
principal national securities exchange on which such common shares or other
security is listed or admitted to trading or, if no such reported sale takes
place on such date, the average of the closing bid and asked prices thereon, as
reported in The Wall Street Journal, or (ii) if such common shares or other
security shall not be listed or admitted to trading on a national securities
exchange, the last reported sales price on the NASDAQ National Market or, if no
such reported sales takes place on any such date, the average of the closing
bid and asked prices thereon, as reported in The Wall Street Journal, or (iii)
if such common shares or other security shall not be quoted on such National
Market nor listed or admitted to trading on a national securities exchange,
then the average of the closing bid and asked prices, as reported by The Wall
Street Journal for the over-the-counter market, or (iv) if there is no public
market for such common shares or other security, the fair market value of a
share of such common shares or a unit of such other security as determined in
good faith by the Directors of the corporation.
The term "Average Market Price" shall mean the average of the 30
consecutive trading days immediately preceding the date in question.
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APPENDIX V
PROPOSED ARTICLE NINTH OF
THE AMENDED ARTICLES OF INCORPORATION
NINTH: Notwithstanding any provision of the Ohio Revised Code
requiring for any purpose the vote, consent, waiver or release of the holders
of shares of the corporation entitling them to exercise two-thirds or any other
proportion of the voting power of the corporation or of any class or classes
thereof, such action, unless expressly otherwise provided by statute, may be
taken by the vote, consent, waiver or release of the holders of the shares
entitling them to exercise not less than a majority of the voting power of the
corporation or of such class or classes; provided, however, that the
affirmative vote of the holders of shares entitling them to exercise not less
than two-thirds of the voting power of the corporation, or two-thirds (2/3) of
the voting power of any class or classes of shares of the corporation which
entitle the holders thereof to vote in respect of any such matter as a class,
shall be required to adopt:
(1) A proposed amendment to this Article NINTH to the Amended
Articles of Incorporation of the corporation;
(2) An agreement of merger or consolidation providing for the
proposed merger or consolidation of the corporation with or
into one or more other corporations and requiring shareholder
approval;
(3) A proposed combination or majority share acquisition involving
the issuance of shares of the corporation and requiring
shareholder approval;
(4) A proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, the assets, with or without the
goodwill, of the corporation; or
(5) A proposed dissolution of the corporation.
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APPENDIX VI
PROPOSED AMENDED SUBPARAGRAPHS
(A), (B) AND (C) OF SECTION 2.02
OF THE CODE OF REGULATIONS
SECTION 2.02. NUMBER AND CLASSIFICATION OF DIRECTORS AND TERM OF OFFICE
(A) Until changed pursuant to Article FOURTH of the Amended
Articles of Incorporation, by the amendment of the Regulations, by the adoption
of new regulations or by action of the directors pursuant to subsection (C)
hereof, the number of directors of the corporation shall be nine, divided into
three classes, each of which shall consist of not less than three directors nor
more than five directors as may be determined by the directors or as may be
required by the provisions of Section 2(c) of Article FOURTH of the Amended
Articles of Incorporation. The number of directors in each class shall be, to
the greatest extent possible, uniform. The election of each class of directors
shall be a separate election. At the 1995 annual meeting of shareholders an
election shall be held to elect three persons to serve as directors for three
years and until their successors are elected, an election shall be held to
elect three persons to serve as directors for two years and until their
successors are elected and an election shall be held to elect three persons to
serve as directors for one year and until their successors are elected.
(B) At each annual meeting of shareholders after the 1995 annual
meeting, directors shall be elected to serve for terms of three years, so that
the term of office of one class of directors shall expire in each year.
(C) The directors may change the number of directors and may fill
any vacancy that is created by an increase in the number of directors;
provided, however, that the directors may not reduce the number of directors to
less than three or increase the number of directors to more than twelve.
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APPENDIX VII
PROPOSED AMENDED SECTION 6.01
OF THE CODE OF REGULATIONS
IF THE PROPOSED AMENDMENT TO SUBPARAGRAPHS (A) AND (B) OF SECTION 2.02 IS
ADOPTED:
Section 6.01. Amendments. The Regulations may be amended, or new
regulations may be adopted, at a meeting of shareholders held for such purpose,
only by the affirmative vote of the holders of shares entitling them to
exercise not less than a majority of the voting power of the corporation on
such proposal; provided, however, that Sections 1.02 and 2.02 and this Section
6.01 of these Regulations may be amended, or new regulations which do not
contain provisions identical to Sections 1.02 and 2.02 and this Section 6.01
may be adopted, only by the affirmative vote of the holders of shares entitling
them to exercise not less than two-thirds (2/3) of the voting power of the
corporation on such proposal. In addition, the Regulations may be amended, or
new regulations may be adopted without a meeting by the written consent of the
holders of shares entitling them to exercise not less than all of the voting
power of the corporation on such proposal.
IF THE PROPOSED AMENDMENT TO SUBPARAGRAPHS (A) AND (B) OF SECTION 2.02 IS NOT
ADOPTED:
Section 6.01. Amendments. The Regulations may be amended, or new
regulations may be adopted, at a meeting of shareholders held for such purpose,
only by the affirmative vote of the holders of shares entitling them to
exercise not less than a majority of the voting power of the corporation on
such proposal; provided, however, that Section 1.02 and this Section 6.01 of
these Regulations may be amended, or new regulations which do not contain
provisions identical to Sections 1.02 and this Section 6.01 may be adopted,
only by the affirmative vote of the holders of shares entitling them to
exercise not less than two-thirds (2/3) of the voting power of the corporation
on such proposal. In addition, the Regulations may be amended, or new
regulations may be adopted without a meeting by the written consent of the
holders of shares entitling them to exercise not less than all of the voting
power of the corporation on such proposal.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than
an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, member, manager, or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust or
other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, if
he had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee, member,
manager, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any of the
following:
(a) Any claim, issue, or matter as to which such
person is adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation unless, and
only to the extent that, the court of common pleas or the
court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such
expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability
asserted against a director is pursuant to section 1701.95 of
the Revised Code.
(3) To the extent that a director, trustee, officer,
employee, member, manager, or agent has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to
in division (E)(1) or (2) of this section, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the action suit or proceeding.
II-1
233
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in division (E)(1) or (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of
directors of the indemnifying corporation who were not and are
not parties to or threatened by the action, suit, or
proceeding referred to in division (E)(1) or (2) of this
section;
(b) If the quorum described in division (E)(4)(a) of
this section is not obtainable or if a majority vote of a
quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney,
or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation
or any person to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in
which such action, suit or proceeding referred to in division
(E)(1) or (2) of this section was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten
days after receipt of such notification, such person shall have the
right to petition the court of common pleas or the court in which such
action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission
that is the subject of an action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, the articles or the
regulations of a corporation state, by specific reference to this
division, that the provisions of this division do not apply to the
corporation and unless the only liability asserted against a director
in an action, suit, or proceeding referred to in division (E)(1) or
(2) of this section is pursuant to section 1701.95 of the Revised
Code, expenses, including attorney's fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final disposition
of the action, suit, or proceeding, upon receipt of an undertaking by
or on behalf of the director in which he agrees to both of the
following:
(i) Repay such amount if it is proved by
clear and convincing evidence in a court of
competent jurisdiction that his action or failure to
act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation
or undertaken with reckless disregard for the best
interests of the corporation;
(ii) Reasonably cooperate with the
corporation concerning the action, suit, or
proceeding.
(b) Expenses, including attorney's fees, incurred by
a director, trustee, officer, employee, member, manager, or
agent in defending any action, suit, or proceeding referred to
in division (E)(1) or (2) of this section, may be paid by the
corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, as authorized
by the directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, trustee, officer,
employee, member, manager, or agent to repay such amount, if
it ultimately is determined that he is not entitled to be
indemnified by the corporation.
II-2
234
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted
to those seeking indemnification under the articles, the regulations,
any agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions,
and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, member, manager, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including, but not limited to, trust
funds, letters of credit, or self-insurance, on behalf of or for any
person who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation
has a financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to division (E)(1) or (2) of this section does not limit the
payment of expenses as they are incurred, indemnification, insurance,
or other protection that may be provided pursuant to divisions (E)(5),
(6), and (7) of this section. Divisions (E)(1) and (2) of this
section do not create any obligation to repay or return payments made
by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of
such a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, shall stand in
the same position under this section with respect to the new or
surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
Section 5.01 of the Registrant's Regulations govern indemnification by
Registrant and provides as follows:
SECTION 5.01. Mandatory Indemnification. The corporation
shall indemnify any officer or director of the corporation who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without
limitation, any action threatened or instituted by or in the right of
the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, trustee, officer,
employee, member, manager or agent of another corporation (domestic or
foreign, nonprofit or for profit), limited liability company,
partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys' fees, filing fees,
court reporters' fees and transcript costs), judgments, fines and
amounts paid in settlement if actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to any
criminal action or proceeding, he had no reasonable cause to believe
his conduct was unlawful. A person claiming indemnification under
this Section 5.01 shall be presumed, in respect of any act or omission
giving rise to such claim for indemnification, to have acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his
conduct was unlawful, and the termination of any action, suit or
proceeding by judgment, order,
II-3
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settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
In addition, Registrant has purchased insurance coverage under
policies issued by the __________________ which insure directors and officers
against certain liabilities which might be incurred by them in such capacity.
ITEM 21. EXHIBITS.
Exhibit
No. Exhibits
- ------- --------
2 Agreement and Plan of Merger dated as of January 26, 1995, among the Miracle-Gro Constituent Companies, the
Miracle-Gro Shareholders, Scotts and Merger Subsidiary (incorporated by reference to Appendix I to the Proxy
Statement/Prospectus in Part I of this Registration Statement)
4(a) Amendment to Articles of Incorporation of Scotts including the terms of the Class A Convertible Preferred Stock
(incorporated by reference to Appendix IV to the Proxy Statement/Prospectus in Part I of this Registration
Statement)
4(b) Articles of Incorporation of Scotts (incorporated by reference to Scotts' Annual Report on Form 10-K (File
No. 0-19768) for the fiscal year ended September 30, 1994)
4(c) Code of Regulations of Scotts (incorporated by reference to Scotts' Annual Report on Form 10-K (File No. 0-19768)
for the fiscal year ended September 30, 1994)
4(d) Form of Series A Warrants (included in Exhibit No. 2)
4(e) Form of Series B Warrants (included in Exhibit No. 2)
4(f) Form of Series C Warrants (included in Exhibit No. 2)
5 Opinion of Vorys, Sater, Seymour and Pease regarding legality
12 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
23(a) Consent of Coopers & Lybrand, Independent Accountants
23(b) Consent of Joel E. Sammet & Co.
23(c) Consent of Vorys, Sater, Seymour and Pease (included in Exhibit No. 5)
24 Powers of Attorney (included on signature page)
99 Form of Proxy.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (2) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 145, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a
II-4
236
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
237
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Marysville, State of Ohio, on February 2, 1995.
THE SCOTTS COMPANY
By /s/ Tadd C. Seitz
------------------------------------
TADD C. SEITZ
Chairman and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of The Scotts Company (the
"Company"), and each of us, do hereby constitute and appoint Tadd C. Seitz,
Theodore J. Host and Paul D. Yeager our true and lawful attorneys and agents,
each with full power of substitution, to do any and all acts and things in our
name and on our behalf in our capacities as directors and officers of the
Company and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys or agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with the filing of this
Registration Statement on Form S-4, including specifically but without
limitation, power and authority to sign for us or any of us in our names in the
capacities indicated below for the Company, any and all amendments (including
post-effective amendments) to such Registration Statement; and we do hereby
ratify and confirm all that said attorneys and agents, or their substitute or
substitutes, or any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
NAME AND TITLE DATE NAME AND TITLE DATE
-------------- ---- -------------- ----
/s/ James B Beard /s/ John S. Chamberlin
----------------------------------------- ------------------------------------
JAMES B BEARD 2/2/95 JOHN S. CHAMBERLIN 2/2/95
Director Director
/s/ Joseph P. Flannery /s/ Theodore J. Host
----------------------------------------- ------------------------------------
JOSEPH P. FLANNERY 2/2/95 THEODORE J. HOST 2/2/95
Director President, Chief Operating Officer
and Director
/s/ Karen Gordon Mills /s/ Tadd C. Seitz
----------------------------------------- ------------------------------------
KAREN GORDON MILLS 2/2/95 TADD C. SEITZ 2/2/95
Director Chairman and Chief Executive Officer
/s/ Donald A. Sherman /s/ John M. Sullivan
----------------------------------------- ------------------------------------
DONALD A. SHERMAN 2/2/95 JOHN M. SULLIVAN 2/2/95
Director Director
/s/ L. Jack Van Fossen /s/ Paul D. Yeager
---------------------------------- ----------------------------
L. JACK VAN FOSSEN 2/2/95 PAUL D. YEAGER 2/2/95
Director Executive Vice President and Chief
Financial Officer (Principal
Accounting Officer)
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238
Exhibit Index
-------------
Exhibit
No. Exhibits
- ------- --------
2 Agreement and Plan of Merger dated as of January 26, 1995, among the Miracle-Gro Constituent Companies, the
Miracle-Gro Shareholders, Scotts and Merger Subsidiary (incorporated by reference to Appendix I to the Proxy
Statement/Prospectus in Part I of this Registration Statement)
4(a) Amendment to Articles of Incorporation of Scotts including the terms of the Class A Convertible Preferred Stock
(incorporated by reference to Appendix IV to the Proxy Statement/Prospectus in Part I of this Registration
Statement)
4(b) Articles of Incorporation of Scotts (incorporated by reference to Scotts' Annual Report on Form 10-K (File
No. 0-19768) for the fiscal year ended September 30, 1994)
4(c) Code of Regulations of Scotts (incorporated by reference to Scotts' Annual Report on Form 10-K (File No. 0-19768)
for the fiscal year ended September 30, 1994)
4(d) Form of Series A Warrants (included in Exhibit No. 2)
4(e) Form of Series B Warrants (included in Exhibit No. 2)
4(f) Form of Series C Warrants (included in Exhibit No. 2)
5 Opinion of Vorys, Sater, Seymour and Pease regarding legality
12 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
23(a) Consent of Coopers & Lybrand, Independent Accountants
23(b) Consent of Joel E. Sammet & Co.
23(c) Consent of Vorys, Sater, Seymour and Pease (included in Exhibit No. 5)
24 Powers of Attorney (included on signature page)
99 Form of Proxy.
1
EXHIBIT 5
(614) 464-5691
February 3, 1995
The Scotts Company
14111 Scottslawn Road
Marysville, Ohio 43041
Ladies and Gentlemen:
We have acted as counsel to The Scotts Company (the "Company")
in connection with the registration under the Securities Act of 1933, as
amended (the "Act"), on Form S-4 (the "Registration Statement") of the issuance
of 195,000 shares of Class A Convertible Preferred Stock, without par value
(the "Preferred Shares"), and Series A, B and C Warrants (collectively, the
"Warrants") to purchase in the aggregate 3,000,000 common shares, without par
value, of the Company (the "Common Shares") in connection with acquisition of
Stern's Miracle-Gro Products, Inc. ("Miracle-Gro"). The Preferred Shares and
the Warrants are to be issued pursuant to an Agreement and Plan of Merger dated
as of January 26, 1995, among Miracle-Gro and its constituent companies, the
Shareholders listed on the signature pages thereof, the Company and ZYX
Corporation, an Ohio corporation and wholly-owned subsidiary of the Company
("Merger Subsidiary") (the "Agreement").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K of the General Rules and Regulations
promulgated under the Act (the "Rules and Regulations").
In connection with the preparation of this opinion, we have examined
and are familiar with each of the following:
1. The Amended Articles of Incorporation and Code of Regulations
of the Company, each as currently in effect, and the Company's corporate minute
book.
2. The proposed amendments to the Amended Articles of
Incorporation and Code of Regulations of the Company attached as Appendices IV
through VII to the Proxy Statement/Prospectus included in the Registration
Statement (the "Proxy Statement/Prospectus").
3. The Registration Statement on Form S-4 filed with the
Securities and Exchange Commission through the EDGAR system under the Act on
the date hereof.
2
The Scotts Company
February 3, 1995
Page 2
4. The forms of the Series A, B and C Warrants.
5. The Agreement.
6. The resolutions adopted by the Board of Directors of the
Company relating to the issuance of the Preferred Shares and the Warrants and
approving the Agreement.
7. Such other records, documents or instruments as in our
judgment are necessary or appropriate to enable us to render the opinions
herein.
In our examinations and in rendering the opinions set forth below, we
have assumed, without independent investigation or examination, (a) the
genuineness of all signatures, the authenticity and completeness of all
documents submitted to us as copies and the authenticity of such originals of
such latter documents; (b) that the final, executed copy of each document
submitted to us in draft form will not differ in any material respect from the
draft form of such document submitted to us; (c) that, with respect to
documents executed by parties other than the Company, such parties had the
power, corporate or otherwise, to enter into and perform all obligations
thereunder and that such documents were duly authorized by all requisite
action, corporate or otherwise, of such parties, that such documents were duly
executed and delivered by such parties and that such documents are the valid
and binding agreements of such parties; and (d) that the Agreement has been
duly authorized, executed and delivered by the parties thereto, other than the
Company and Merger Subsidiary, and constitutes valid and binding obligations of
the parties thereto, other than the Company and Merger Subsidiary, enforceable
against such parties in accordance with its terms. As to the facts material to
our opinions expressed herein which were not independently established or
verified, we have relied upon oral or written statements and representations of
officers and other representatives of the Company and others.
Based upon and subject to the foregoing, and the further
qualifications and limitations set forth below, as of the date hereof, we are
of the opinion that:
1. Upon adoption of the proposed amendment to Article FOURTH of the
Amended Articles of Incorporation of the Company, which amendment is attached
as Appendix IV to the Proxy Statement/Prospectus, by the Company's shareholders
and the filing of such amendment in accordance with Ohio law, the Preferred
Shares will be duly authorized and, when issued in accordance with the terms
and conditions of the Agreement, will be validly issued, fully paid and
nonassessable.
2. The Warrants, when duly executed by the Company and issued in
accordance with the terms and conditions of the Agreement, will be valid and
binding obligations of the Company.
3. Assuming (i) the due adoption of the proposed amendment to Article
FOURTH of the Amended Articles of Incorporation of the Company, which amendment
is attached as Appendix IV to the Proxy Statement/Prospectus, by the Company's
shareholders and the filing of such amendment in accordance with Ohio law and
(ii) the due execution of the Warrants by the Company and the issuance of the
Warrants in accordance with the terms and conditions of the
3
The Scotts Company
February 3, 1995
Page 3
Agreement, the Common Shares, if or when issued by the Company upon conversion
of the Preferred Shares in accordance with the terms of such Article FOURTH and
such Registration Statement when it shall become effective and/or pursuant to
the Warrants, will be validly issued, fully paid and nonassessable; provided,
that, at the time of the conversion of the Preferred Shares and/or the exercise
of the Warrants, there are available authorized but unissued common shares,
without par value, of the Company, the authorization of which may require
future corporate action, including action by the Company's shareholders.
We are members of the Bar of the State of Ohio and do not purport to
be experts in the laws of any jurisdiction other than the laws of the State of
Ohio and the United States of America.
We hereby consent to the use of our name in the Registration Statement
under the caption "Validity of Shares of Class A Convertible Preferred Stock
and the Warrants" and to the filing of this opinion as Exhibit 5 to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the Rules and Regulations.
Very truly yours,
VORYS, SATER, SEYMOUR and PEASE
1
Exhibit 12
THE SCOTTS COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
Fiscal
FISCAL YEAR ENDED SEPTEMBER 30, Three Months
------------------------------------------------------------ December 31,
1990 1991 1992 1993 1994 1994
------- ------- ------- ------- ------- ------------
(in thousands except ratio data)
COMPUTATION OF EARNINGS:
Income (loss) before income
taxes, extraordinary items and
cumulative effect of accounting
changes $(6,761) $4,455 $26,203 $35,367 $41,822 $(5,364)
Fixed Charges:
Interest expense 34,531 30,932 15,942 8,454 17,450 5,694
Capitalized interest 0 0 380 0 321 100
Rental expense 1,345 2,001 2,427 3,042 4,305 1,077
------- ------- ------- ------- ------- -------
Earnings, as defined $29,115 $37,388 $44,952 $46,863 $63,898 $ 1,507
------- ------- ------- ------- ------- -------
COMPUTATION OF FIXED CHARGES:
Interest expense $34,531 $30,932 $15,942 $ 8,454 $17,450 $ 5,694
Capitalized interest 0 0 380 0 321 100
Rental expense 1,345 2,001 2,427 3,042 4,305 1,077
------- ------- ------- ------- ------- -------
Fixed Charges $35,876 $32,933 $18,749 $11,496 $22,076 $ 6,871
------- ------- ------- ------- ------- -------
Preferred Stock Dividends
Ratio of Earnings to Fixed
Charges and Preferred
Stock Dividends(1)(2)(3) 0.00 1.14 2.40 4.08 2.89 0.00
(1) The ratio of earnings to fixed charges is computed by dividing (a) the sum
of (i) income from continuing operations before income taxes, extraordinary
items and cumulative effect of changes in accounting method and (ii) the
sum of fixed charges and preferred stock dividends. Fixed charges consist
of interest on all indebtedness (including amortization of deferred
financing costs), capitalized interest and the estimated interest compound
of operating leases (assumed to be one-third of total rental expense).
(2) The fiscal year ended September 30, 1990 reflected a deficiency of
earnings to fixed charges and preferred stock dividends in the amount of
$6,761.
(3) The historical and pro forma three months ended December 31, 1994
reflected a deficiency of earnings to fixed charges and preferred stock
dividends in the amount of $5,364 and $7,260, respectively.
1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of The Scotts Company of our report dated November 14, 1994 on our
audits of the consolidated financial statements and financial statement
schedules of The Scotts Company and Subsidiaries as of September 30, 1994 and
1993, and for the years in the period ended September 30, 1994, which report
is incorporated by reference in The Scotts Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994. We also consent to the reference
to our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 1, 1995
1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-4
of The Scotts Company of our report dated January 26, 1995 on our audits of the
combined financial statements of Stern's Miracle-Gro Products, Inc. and
Affiliated Companies as of September 30, 1994 and 1993, and for the years in
the period ended September 30, 1994. We also consent to the reference to our
Firm under the caption "Experts."
JOEL E. SAMMET & CO.
New York, New York
February 1, 1995
1
THE SCOTTS COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 6, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of Common Shares of The Scotts Company (the
"Company") hereby appoints Paul D. Yeager and Craig D. Walley, and each of
them, the Proxies of the undersigned, with full power of substitution, to
attend the Annual Meeting of Shareholders of the Company to be held at the
Stouffer Dublin Hotel, 600 Metro Place North, Dublin, Ohio, on Thursday, April
6, 1995, at 10:00 a.m., Eastern Standard Time, and any adjournment or
adjournments thereof, and to vote all of the Common Shares which the
undersigned is entitled to vote at such Annual meeting or at any adjournment or
adjournments thereof:
1. To approve the acquisition of one-third or more but less than a majority of
the voting power of the Company by the shareholders of Miracle-Gro Products,
Inc., Stern's Nurseries, Inc., Miracle-Gro Lawn Products, Inc., and Miracle-Gro
Products Limited
/ / FOR / / AGAINST / / ABSTAIN
2. To amend Article FOURTHof the Amended Articles of Incorporation of the
Company
/ / FOR / / AGAINST / / ABSTAIN
3. To amend the Amended Articles of Incorporation of the Company to add a new
Article NINTH
/ / FOR / / AGAINST / / ABSTAIN
4. To amend Subparagraphs (A) and (B) of Section 2.02 of the Code of
Regulations of the Company
/ / FOR / / AGAINST / / ABSTAIN
5. To amend Subparagraph (C) of Section 2.02 of the Code of Regulations of the
Company
/ /FOR / / AGAINST / / ABSTAIN
6. To amend Section 6.01 of the Code of Regulations of the Company
/ / FOR / / AGAINST / / ABSTAIN
7. To elect three directors for terms of one year, to elect three directors
for terms of two years and to elect three directors for terms of three years
(or, if Proposal No. 4 is not adopted, to elect nine directors to serve until
the next Annual Meeting of Shareholders).
For terms of one year:
Theodore J. Host, Karen Gordon Mills, Tadd C. Seitz
/ / Vote for all nominees
/ / Vote for all nominees except _________________________
For terms of two years:
James B Beard, John M. Sullivan, L. Jack Van Fossen
/ / Vote for all nominees
2
/ / Vote for all nominees except _________________________
For terms of three years:
John S. Chamberlin, Joseph P. Flannery, Donald A. Sherman
/ / Vote for all nominees
/ / Vote for all nominees except ___________________________
In their discretion, the Proxies are authorized to vote upon such other matters
(none known at the time of solicitation of this proxy) as may properly come
before the Annual Meeting or any adjournment or adjournments thereof.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED 'FOR' PROPOSAL NOS. 1-6 AND
'FOR' THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 7 AS DIRECTORS OF THE
COMPANY. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT OR ADJOURNMENTS THEREOF, OR IF A NOMINEE FOR ELECTION AS A
DIRECTOR NAMED IN THE PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL
NOT SERVE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION
OF THE PROXIES ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEE(S) AS THE
DIRECTORS MAY RECOMMEND.
(THIS PROXY CONTINUES AND MUST BE SIGNED AND DATED ON THE REVERSE SIDE)
The undersigned hereby acknowledges receipt of the Notice of the
Annual Meeting of Shareholders, dated March [8], 1995, the Proxy
Statement/Prospectus furnished therewith, and the Annual Report of the Company
for the fiscal year ended September 30, 1994. Any proxy heretofore given to
vote the Common Shares which the undersigned is entitled to vote at the Annual
Meeting of Shareholders is hereby revoked.
Date _______________________________
____________________________________
____________________________________
Shareholder sign name exactly as it is stenciled hereon.
Note: Please fill in, sign and return this proxy in the
enclosed envelope. When signing as Attorney, Executor,
Administrator, Trustee or Guardian, please give full
title as such. If signer is a corporation, please sign
the full corporate name by authorized officer. Joint
Owners should sign individually. (Please note any
change of address on this proxy).
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE SCOTTS COMPANY
